1105.2 - Procedure For Overpayment Recovery

Introduction

Purpose

Overpayment occurs when compensation that is not owed to an employee is paid in error. The primary cause of employee overpayments is late salary actions; however, this does not negate an employee's obligation to repay overpaid funds immediately. The State of North Carolina considers an employee who receives an overpayment to be in debt to the state and subject to all applicable debt statutes.

Overpayments include (but are not limited to) excess wage and salary payments, erroneous refunds, under-withheld voluntary or involuntary deductions for retirement programs, under-withheld FICA/ Social Security insurance programs, including billed receivables, and miscellaneous deductions.

The University of North Carolina at Chapel Hill (The University) follows the guidelines provided by the Internal Revenue Service, Social Security Administration, and the State of North Carolina in the recovery and reporting of overpayments.

The employee, as well as the respective department, is advised that the University of North Carolina at Chapel Hill is a State agency and is subject to all applicable State laws and regulations. Overpayments are governed by North Carolina State law and subject to the State Employees Debt Collection Act (SEDCA).

Scope of Applicability

This policy applies to all employees paid by the University and administrative units processing employee compensation. So as not to put the University at risk of non-compliance, attempts are made to recover all overpaid funds.

Employee Responsibility

Employees bear full responsibility for funds received in error and are expected to repay overpaid funds to the University immediately.

Employees are responsible for reviewing funds received from the University for accuracy via SelfService paystubs. When an employee is aware of a possible overpayment, the employee is to notify the employing department immediately. An overpayment is not an entitlement to keep unearned money and should not be spent, as it will have to be repaid via the overpayment process.

The employee is responsible for penalties and interest associated with late repayments as stipulated in North Carolina General Statute 147-86.23. Ninety (90) days after the first notification date on the employee notice of an overpayment, overpayments are reported to the State and are then treated as debts to the State of North Carolina.

Employees should ensure funds are available for repayment and that the repayment method is viable.

Department Responsibility

Departments can prevent wage overpayments by processing personnel actions in a timely manner. Departments are expected to review the Payroll Prelim Report during lockout in order to identify errors in time to correct them before they become overpayments and after payroll confirm. Payroll lockout and confirm schedules are posted on the UNC Payroll website and are to be reviewed periodically for updates.

Departments should review training materials, review payroll registers during and after lockout, and their respective employees with personnel actions affecting the current pay cycle.

Until the overpayment is repaid in full, the expense remains on departmental funds. The department is also responsible for any additional external fees incurred during the recovery process, and any unrecoverable benefits or taxes.

Procedure

  • When a department discovers or is notified of an overpayment, Payroll Services is immediately notified via a Finance Form 1102.2.1f (payroll exception sheet) attached to a help ticket. The payroll exception sheet is signed by the HR Officer before submission.
  • While the help ticket is routing, Business Services Help Desk and HR Business Analysts confirm job data correctly supports the overpayment.
  • Upon notification of an overpayment Payroll Services gathers the supporting documents and calculates the overpayment on a gross-to-net basis.
  • If the overpayment is on a paycheck(s) where benefits were withheld, OHR Benefits is consulted to confirm which benefits are recoverable from the vendor and which are the employee's responsibility to repay.
  • Payroll Services drafts the employee overpayment letter.
  • Payroll Services sends the letter to the employing department outlining the amount which is due and the repayment options available. The overpayment letter specifies the amount to repay and by when it should be repaid.
  • The department sends this letter to the employee and copies the Payroll Services employee who sent the letter and overpayments@unc.edu.
  • The employee repays the full overpayment. See the section on "Repayment Options" below. The overpayment amount is not considered repaid until the entire amount has been received by Payroll Services.
  • Once full repayment is received, the funds are returned to the department and updates are made to the employee's gross pay, taxes, deductions, and benefit records. Payroll issues a receipt to the employee and department noting the amount has been received.
    • Current year overpayments are credited on the next possible on-cycle payroll.
    • Prior year overpayments are credited via a journal entry.
    • Attempts are made to return the funds to the original overpayment account; however, due to system constraints this is not always possible. When the funds are credited back to the employee's most current funding source, the department should submit a PAAT action to correct the funding sources as necessary. Departments should email overpayments@unc.edu if they are unsure if an overpayment has been repaid.

Delinquent Overpayments

Most of the time, employees repay overpayments within 30 days of being notified; however,

  • If Payroll has not received a response after 30 days from the date on the initial letter or email notification, the overpayment is considered past due and a second communication is sent indicating interest and penalties will begin unless repayment arrangements are made within 7 days of the date on the second letter. 
  • If no response is received after 90 days from the date on the initial letter or email notification, then Accounting Services, in accordance with Finance Procedure 503.1, will pursue additional collection efforts for past due billings including referring the debt to the North Carolina Department of Revenue (NCDOR), under North Carolina General Statute 105A-3(b), to have it deducted from the employee's State income tax refund according to the Set-Off Debt Collections Act (SODCA).

Amount to be Recovered

This paragraph is a summation of the IRS guidance found in Publication 525 and General Instructions for Form W-2 and W-3 guidance linked at the end of this procedure. The employee is responsible for the gross overpayment amount. The employee is only required to repay the net amount if repayment can be accomplished within the same calendar (tax) year.  If repayment crosses two or more calendar (tax) years, the gross amount must be repaid. Per page 12 of the General Instructions for the Form W-2 and W-3 guidance, "…the wages paid in error in a prior year remain taxable to him or her for that year. This is because the employee received and had use of those funds during that year."

The employee is also responsible for repaying applicable benefits deductions. If the employee has closed a retirement account (403(b), 457, etc.) before amounts over-deposited have been reclaimed, these amounts (including any employer contributions overpaid) must be additionally repaid by the employee.

If amounts deducted for benefit or other purposes have already been remitted to the vendor and cannot be recovered from the payee/carrier, this amount must be repaid by the employee.

Repayment Options

Forms of repayment: Employee repayments must be made either by money order or check (made out to the University of North Carolina at Chapel Hill) or by payroll deduction. Credit card payments will be accepted under special circumstances. Payroll Services cannot process wire transfers or cash payments. Payments should be mailed to:

Attn: Overpayments
Payroll Services
104 Airport Dr., Suite 3600
CB# 1260
Chapel Hill, NC 27599

Active employees with current salaries: Active employees who receive an overpayment are considered to be in receipt of prepaid wages. Payroll Services will by default set up payroll deductions to recover the overpaid amount. Employees may opt to pay by personal check(s) to Payroll Services.

Terminated employees and those with insufficient salary for payroll deduction must pay by money order or check. At the discretion of Payroll Services, a payment plan may be arranged.

Returned Payments

If the method of repayment is returned for any reason and additional costs are incurred, the department incurs the additional fees and the employee is immediately sent to collections.

Exceptions

Employees working in states other than North Carolina are subject to the regulations of that state.

Related Requirements

External Regulations and Consequences

The following is a non-exhaustive list of relevant State and Federal laws and regulations:

North Carolina State Law

Federal Law

University Policies, Standards, and Procedures

Contact Information

Primary Contact

Payroll Services
919-962-0047
overpayments@unc.edu

Important Dates

Revised:

  • July 1, 2019: New Policy established
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Details

Article ID: 131374
Created
Thu 4/8/21 9:07 PM
Modified
Mon 11/14/22 10:14 AM
Effective Date
If the date on which this document became/becomes enforceable differs from the Origination or Last Revision, this attribute reflects the date on which it is/was enforcable.
08/08/2019 12:00 AM
Issuing Officer
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Issuing Officer Title
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Director of Payroll Services
Last Review
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08/08/2019 12:00 AM
Last Revised
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08/08/2019 12:00 AM
Next Review
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08/07/2020 12:00 AM
Origination
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08/08/2019 12:00 AM
Responsible Unit
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Finance and Budget