An overpayment can be recovered directly from the Employee's wages or by the employee returning the money.
To recover the overpayment directly from wages, the employer must provide that the employee:
has a choice about how the money is repaid;
has agreed to the deduction in writing;
has agreed on the amount and frequency of the deductions (which must be reasonable).
you may also need to check with your Company Awards and/or any Union clauses relating to the recovery of an overpayment.
Once the above has been agreed and confirmed, you can then apply the fix. Review the scenarios and steps below.
Scenario 1 - Current Financial Year and the Employee has returned the money
The employee has repaid the net overpayment by either cash, cheque, or EFT transfer, and both the overpayment and repayment occurred in the current financial year.
Calculate the value of the overpayment, including the difference between the gross amount and the Tax.
In your next pay period, if it is in the same financial year or an adjustment period, go to Payroll, Transactions, Processing, Manual Calculation and select the Employee.
Select Subtract and enter the values against each pay component you need to reduce. Do not include a negative sign in the values as they are already negative.
If you need to reduce the Employer Superannuation value, select Employer Contribution and enter both the Super Earnings and This Advice.
Click Process. The year-to-date figures will be updated when the End of Pay is complete.
Note: If the transaction is included in an adjustment period, you will need to complete your normal payroll process, which may include:
Reports
EFT Export - you will need to run the EFT Export, even if there is no payment to generate. This will mark the process as complete and allow the End of Pay process to be run.
Pay Advices
STP Reporting
End of Pay
Scenario 2 - Current Financial Year and the Employee has not returned the money
The employee has not repaid the overpayment which occurred in the current financial year, and they have agreed to deduct the amount from their pay.
Go to Payroll, Maintenance, General, Additions and Deductions.
Ensure that you have a Deduction after Tax that can be used to recover the earnings from the Employee’s pay. The Deduction should be set up as an Amount and if the overpayment is to be recovered over several periods, Reducing Balance can be ticked. If you have the General Ledger module and you create an Overpayment Recovery Deduction, include the Deduction in your GL Batch in General Ledger Integration, Maintenance, Batches, Batches.
Calculate the value of the overpayment, including the difference between the gross amount and the Tax.
In your next pay period, if it is still in the same financial year or an adjustment period, go to Payroll, Transactions, Processing, Manual Calculation and select the Employee.
Select Subtract and enter the values against each pay component you need to reverse. Do not include a negative sign in the values as they are already negative.
Once all components have been entered, select Deductions After Tax and add the Overpayment Recovery Deduction. Enter the value of the Net Pay. This will result in zero Net Pay.
If you need to reduce the Employer Superannuation value, select Employer Contribution and enter values in Super Earnings and This Advice.
Click Process. The year-to-date figures will be updated when the End of Pay is complete.
Note: If the transaction is included in an adjustment period, you will need to complete your normal payroll process, which may include:
Reports
EFT Export - you will need to run the EFT Export, even if there is no payment to generate. This will mark the process as complete and allow the End of Pay process to be run.
Pay Advices
STP Reporting
End of Pay
Deduct from pay
If the overpayment is going to be recovered over several periods, go to Payroll, Maintenance, Employees, Employees. Edit the employee from whom you are recovering the overpayment from and select Additions and Deductions.
Select the Overpayment Recovery deduction and untick Use Default. Enter Amount per Pay. If the deduction is a Reducing Balance, enter the Total Amount to be recovered in Reducing Balance. The Reducing Balance will decrease each pay until the Total Amount is paid. If in the last period the value of the Reducing Balance is less than the Amount per Pay, the lower will be taken.
When the next transaction is entered, if you completed Step 1, the deduction will already be included in the transaction. If you are recovering the full overpayment in the next employee’s pay (timesheet or termination payments), enter the Overpayment Recovery deduction used in the manual calculation subtract.
Scenario 3 - Previous Financial Year
If your employee has been overpaid in a previous financial year and the Final STP Event has been reported to the Australian Tax Office, the Employee will need to repay the Gross amount. This can be done by the employee returning the money or by using an Overpayment Recovery deduction. A STP Adjustment will need to be completed to correct the previously reported STP figures. Refer to the article below:
For further information from the ATO on Overpayments in Previous Years, see https://www.ato.gov.au/Business/PAYG-withholding/In-detail/Repayment-of-overpaid-amounts/?page=2#Overpayment_relates_to_a_previous_financial_year