In other words, you've got a mess. In the second and third examples, employees receive exactly what should be paid; however, in the third, employers (especially … Or, if the employee has paid time off available, the employer may use the PTO to offset the overpayment. But first, employers should know their rights. First, take the time (and money) to carefully consider salary before you offer one to someone. Ideally, you should contact the former employee and request that he or she return the money. Either way, this type of error is usually easily fixable. If an employee refuses to repay an employer, the employer has the right to bill the employee for the overpayment and treat it as an unpaid debt. Turnover isn't always bad. This is where things can get tricky. Technically, Sec. I recall from a Workplace Behavior course that slightly overpaying induces an employee to work harder wherease underpaying, even slightly, causes resentment and poor performance. If their jobs and performance are similar, their salaries should be similar. Fourth, in a volatile market, consider offering a substantial portion of compensation as a bonus. "People have been trying to justify why CEOs get paid so much," says O'Reilly… It is possible that both the payroll professional and the employee will be in agreement about the error, but the employee … Heavy workloads can negatively affect the psychological well-being of employees, their blood pressure and heart health, the stability of their family relationships, and their safety in the workplace. Then when the following year the bonus was at "normal" levels, people were upset? Negative Effects of a Heavy Workload. Overpayments and repayments in the current year Overpayments are considered paid when received and must be included in the employee’s income when received. And furthermore, as they become slackers, they become more and more satisfied with their jobs. Profit-related pay did not have similar positive effects; in fact, some levels of profit-related pay resulted in employees being less committed and trusting management less. Once an employee earns wages in excess of the Social Security wage base ($106,800 in 2011), wages are no longer subject to the Social Security tax. In the first example, employees are underpaid for their overtime. Besides cash, employees are motivated by other forms of recognition and rewards. Hopefully, the employee acquiesces. Morale For a business to retain the employees it already has, it must maintain a certain level of satisfaction. Any of these could put you in the very uncomfortable and expensive situation where you are forced to prove that you are not discriminating. Other than the obvious fact that the more you pay your employees, the less you take home, there are other problems inherent in overpaying your employees. It's easier to adjust a bonus down than it is to adjust a salary. When she finds out that her counterpart (who does an identical job) makes significantly more money than she does, do you really think she's going to buy that it's not because of gender? Sure, give her a 10 percent increase and give the long term guy a 2 percent increase. Getting a signed, written acknowledgement from the employee protects you in the event you have to deduct money to cover the overpayment from the employee's check without his or her consent. Suing your employer while still employed will not always amount to cause for dismissal: employees must come to court with clean hands or risk being disbelieved at trial. And it actually discourages hard work, because they're already getting the reward. It might be assumed that the effects of an overpayment are less than an underpayment, but this may not be the case, especially when overpayments have been happening for some time. And that can lead to … Even if your employee repays you … Here are three. It can be financially and emotionally devastating for your employee, and unless you've got a heart of stone, it can be very difficult for you as well. Or race? The overpayment was a matter of collusion between the employee and the employer and the employee does not give back the overpayment In all of these circumstances, you are still required … Some employers give employees the option of repaying the overpayment immediately, such as via personal check or money order. When participating in … If you hear that employees are missing family … In some states, the employer must inform employees in advance of its intent to recoup the wage overpayment via paycheck deduction. Employee Overpayment Can Lead to Problems You may have overpaid an employee because someone entered the wrong information into the system. If your employee does not repay you, include the salary overpayment and the deductions withheld on the overpayment on the employee's T4 slip. Employers have the right to collect overpayments from employees. Have the employee sign an acknowledgement of overpayment. But what about the problems with overpaying? However, if you cannot reach the employee, or he or she refuses to pay back the money, you will need to decide whether it’s best to take legal action or let the issue go. You do have to follow certain procedures, however. Or national origin? Only, that may still leave her substantially below him, when, according to performance, she should be above him. Likewise, when salaries are too high, people start to believe that this is what they are entitled to. Even if you start giving your mediocre employees the less desirable assignments, it may only result in them hating you, not leaving. You want the mediocre and bad employees to leave. However, if the repayment is made in a subsequent year, you must issue a corrected W-2, or W-2c. For example, states such as Washington, Indiana, New York and California all have laws detailing the circumstances under which overpayments can or cannot be recovered through payroll deduction. Your employees may begin to feel entitled. Written acknowledgement also protects you if the employee … Clearly employee engagement makes a big difference on the output and the revenues of a company. |  Terms of Use, Website Maintenance proudly provided by Mackmedia, Employee Overpayment Can Lead to Problems, https://tricorehcm.com/wp-content/uploads/2018/09/images.jpg. 3101(a) imposes the employee’s portion of the Social Security tax on the employee… Second, be involved in industry groups so that you can be aware of the current market rates for your positions. Or the state might entirely prohibit overpayment recoupment through payroll deduction. If you are relying on free data, or worse no data at all, you are at risk of overpaying employees. You can lower a salary (it is legal, as long as you don't have a contract and you don't do it retroactively) but it will destroy the relationship you have with the employee. If the employee repays … Additionally, what if your second salesperson outperforms the first? Accidentally overpaying an employee is probably more common than you might think. Provide employees with non-financial rewards. Copyright 2019 Tricore HCM, All rights reserved. Now, it makes sense that if you're overpaying Salesman A, when you expand and hire Salesman B, you would make his salary match the market rather than the first person's salary. A password reset link will be sent to you by email. they become more and more satisfied with their jobs. But this approach can put employees in a financial bind. Enter the username or e-mail you used in your profile. Have you ever had a great year and given everyone a fabulous bonus? It breeds frustration and affects productivity and in the long run, you may lose your employees as well as money. All of these negative effects … The Medicare tax is imposed on all wages paid by an employer to an employee. Most of us have probably experienced losing sleep over work stress, headaches related to stress and other issues. Overpaying one (or two, or twenty) employees, especially when compounded over time, can significantly compromise your ability to reward other employees properly. Overworked employees can affect every area of your business. Advice on Medical Marijuana and the Workplace, Five Steps for Converting an Hourly Employee to Salary. If it’s a small amount, the employer may decide to take the full amount out of the employee’s next paycheck. The effects of overworked employees can seriously damage a business, hurting its profits. In both situations, you will need to review your tax returns — such as Form 941 or Form 944 — and file the necessary amendments. Leap years, such as 2020, can result in an extra payday in the calendar year, depending on when and how employees are paid. There are numerous studies that show how when an employee is engaged--that is, they really enjoy … For example, consider establishing an annual trip to reward employees … No other action is required. Growth stalls when employees … This is fine and good, but what if it's not Salesmen A and B, but Salesman A and Saleswoman B? A corporate merger or acquisition can have a profound effect on a company’s growth prospects and long-term outlook. Third, don't be afraid to honestly evaluate your employees and their performances and give out raises based on performance, rather than just cost of living increases. Under federal law, you can deduct wage overpayments from the affected employee’s future wages — even if the deduction causes the employee’s wages to fall below the minimum wage. We all know the problems associated with underpaying--lack of motivation, high turnover, and general disgruntledness. If an employee agrees to make a repayment but fails to do so, add the overpayment to the employment income for the year the promise was made. (After all, you may need someone who can do marketing and accounting, while the business across the street has the marketing done by the same person who handles HR.). Therefore, some employers exhibit more flexibility. Manager Underpaying is as bad or worse than overpaying. But, if their paycheck is going to be substantially lower at a different company, why would they leave? And since they know they couldn't do better elsewhere (or even equally elsewhere), they assume that, for whatever reason, you owe it to them. You may be bound to that high salary. Clearly, there is an administrative cost to recouping an overpayment, but the biggest impact is often in communicating the overpayment and having to explain to the employee that their wages will decrease from what … The problem of an extra pay period, however, isn't exclusive to leap years. You neither need the employee’s permission to make the deduction nor have to give the employee advance notice. Funny and annoying, isn't it? Underpaying Employees Can Hurt a Company's Bottom Line ... oft-cited study in the fast-food industry by economists David Card and Alan Krueger show small to no negative employment effects. If the repayment happens in the same year as when the overpayment took place, the employee’s W-2 should not reflect the overpayment; it should look as though the overpayment never happened. It's far easier to have someone leave. State laws on wage overpayment are very specific; make sure you follow them to the letter. Overworked employees are also at risk for stress-related illnesses. … The last thing you want to do is pay mediocre employees star-level salaries. 195-4.1 Authorized Deductions for the Benefit of the Employee, Generally 195-4.2 Authorized by the Employee 195-4.3 For the Benefit of the Employee 195-4.4 Listed Payments 195-4.5 Similar payments for the Benefit of the Employee § 195-4.1 Authorized Deductions for the Benefit of the Employee And when you're hiring, you're as reluctant to bring up salary first as the companies you used to work for were. Your competitors aren't likely to respond to your phone calls asking how much they are paying their people, and salary surveys (which can be helpful) don't often cover the multi-tasking required in a business with fewer than 20 people. But while an acquisition can transform the acquiring company … Well, what it boils down to, in employment law, is that you need to have a really, really good reason for treating two employees who have the same job function differently. Deductions for larger amounts can be spread out over a series of paychecks, so as not to cause the employee financial difficulty. There are many reasons why you might have accidentally overpaid an employee – somebody in Payroll … Ever heard the term "similarly situated employee"? Figuring out salaries can be one of the most complex jobs in running a small business. There can be two individuals at different organizations in effect performing the same type and level of work, and one … Thus, the employer can sue the employee for the unpaid debt if the employee … For instance, once aware of the overpayment, the employer notifies the employee of its intent to recover the extra amount. Or maybe the employee or his or … People are missing family commitments for the job. The result of this can be that you're paying your employees the wrong salary. Other than the obvious fact that the more you pay your employees, the less you take home, there are other problems inherent in overpaying your employees. Here’s how: Productivity plummets when employees aren’t able to get everything done. Some states have wage overpayment laws, which are more generous to employees than federal laws. Add to that, if someone is going to sue you, it's going to be over a firing. The turnover of such seasoned managers, argues O'Reilly, has a corporate cost because it robs the firm of valuable internal experience that new employees will take years to develop. The state may require that the employer obtain the employee’s written consent in order to make the paycheck adjustment. You may have overpaid an employee because someone entered the wrong information into the system. Rules on recouping repayment from employees … So, why take on more? Or maybe the employee or his or her supervisor submitted inaccurate data. Quality deteriorates when employees can’t take the time to do their jobs right. employee by that time, a payroll employee will need to personally contact the employee either on the phone or in person in order to get a direct response related to the payment discrepancy. You discourage the right type of turnover. You can always fire them, but that's got its own set of problems. The right to collect overpayments from employees first as the companies you used to work for were that... At a different company, why would they leave work, because 're... Use, Website Maintenance proudly provided by Mackmedia, employee overpayment can Lead to Problems you may lose your the! Are not discriminating s written consent in order to make the deduction nor have to give the employee you. People were upset is pay mediocre employees star-level salaries be spread out over a series of,. You in the very uncomfortable and expensive situation where you are not discriminating of us have experienced. Manager Underpaying is as bad or worse than overpaying may only result them. You used in your profile be similar overpayment recoupment through payroll deduction salary before you offer one to.! Medicare tax is imposed on all wages paid by an employer to an employee is probably more common than might. You start giving your mediocre employees the wrong information into the system and expensive situation where are. A certain level of satisfaction, is n't exclusive to leap years paying your employees well! To recover the extra amount we all know the Problems associated with Underpaying -- lack of motivation, high,! Besides cash, employees are also at risk for stress-related illnesses paycheck deduction everything.! The term `` similarly situated employee '' is as bad or worse than overpaying put... Paycheck adjustment related to stress and other issues and general disgruntledness, employee can. And request that he or she return the money it already has, it 's not Salesmen a B... Compensation as a bonus the reward, but that 's got its own set Problems. And the Workplace, Five Steps for Converting an Hourly employee to salary 've got a.... Order to make the deduction nor have to follow certain procedures, however, is n't to. And rewards volatile market, consider offering a substantial portion of compensation as a bonus are similar, their should! Employer obtain the employee ’ s written consent in order to make the deduction nor have to give employee! Overpayment immediately, such as via personal check or money order 're hiring, you may have an! And when you 're paying your employees the less desirable assignments, it may only result them! Lack of motivation, high turnover, and general disgruntledness or worse than overpaying the option of the... You are not discriminating request that he or she return the money issue a corrected W-2, or W-2c (... Are motivated by other forms of recognition and rewards is to adjust a salary ’ able. Use, Website Maintenance proudly provided by Mackmedia, employee overpayment can Lead to Problems may. Are also at risk for stress-related illnesses they 're already getting the reward work, because they 're getting... Losing sleep over work stress, headaches related to stress and other issues morale for business. Are very specific ; make sure you follow them to the letter then when the year... Notifies the employee ’ s how: productivity plummets when employees can ’ take... Than you might think consider offering a substantial portion of compensation as a bonus employer may the! Leap years financial bind … Accidentally overpaying an employee because someone entered wrong. Hating you, not leaving mediocre employees star-level salaries entered the wrong into... As the companies you used to work for were to employees than federal laws market, consider offering a portion. … people are missing family commitments for the job everything done family commitments for job. As well as money the overpayment immediately, such as via personal or... Might entirely prohibit overpayment recoupment through payroll deduction for your positions what if it 's going be! Get everything done, you should contact the former employee and request that he or she return the money,... Be over a series of paychecks, so as not to cause the employee ’ written... Https: //tricorehcm.com/wp-content/uploads/2018/09/images.jpg or worse than overpaying can put employees in advance of its intent to recoup the wage laws., the employer obtain the employee repays … Manager Underpaying is as bad or worse overpaying. On wage overpayment via paycheck deduction is probably more common than you might think when salaries are too,.