Payroll Services Overpayments


Substitute House Bill 1738, which passed during the 2003 Legislative Session, became effective January 1, 2004 with the publishing of procedures and rules by the Office of Financial Management (OFM). Some state agencies (not higher ed) suggested to OFM staff that their agencies lacked sufficient administrative power to demand repayment of salaries or wages when overpayments were discovered. The new legislation significantly expands the methods of recovery and defines the term “overpayment”.

RCW 49.48.210 defines “overpayment” as a payment of salaries or wages for a pay period that is greater than the amount earned for a pay period. This is the same definition Payroll Services has always followed. This is consistent with the Washington State Constitution Article VIII Section 5, “The credit of the state shall not, in any manner be given or loaned to, or in aid of, any individual, association, company or corporation”, which has been cited by the State Auditor’s Office when alleging overpayments. Retaining an overpayment may also violate the state ethics laws. It is not appropriate for the Employing Department to suggest that an employee who has been overpaid gets to keep the money. (Employing Departments do have the right to correct time report/leave reports which may reverse original pay-affecting results.) For these reasons it continues to be the policy of Payroll Services to aggressively recover overpayments as quickly as possible while working with employees and their departments. If the overpayment involves an employee covered by a collective bargaining agreement, the recovery methods in the collective bargaining agreement should be followed. The methods of recovery are:

  1. Write WSU a check – The easiest and most simple recovery method is for the individual to write a check payable to WSU for the net amount of the overpayment. Payroll staff will determine the exact amount of the recovery. Checks should be submitted promptly to Payroll Manager, Payroll Services, PO Box 641024, Pullman, WA 99164-1024. The amount of the recovery will be processed through our payroll system to reduce the individual’s year-to-date earnings and appropriate deductions and contributions.
  2. Bring the paycheck back – If the individual is not on direct deposit and received a paycheck and knows they have been overpaid, we encourage them to bring the check back to Payroll Services. A new check will be prepared immediately for the proper amount.
  3. Another method of recovery would be to deduct the amount of the overpayment from the next paycheck. Employees who agree to this recovery method will sign an authorization form provided by Payroll Services. Department personnel will be encouraged to retain a copy of the recovery authorization form so they can ensure the adjustment is reflected on the next Payroll Expenditure Audit Report (PEAR).
  4. Here are additional recovery methods provided in the new legislation. Facts and circumstances of the particular situation will determine which of the following may be used.
    1. Payroll Services may agree to voluntary wage deductions over an extended period of time.
    2. Payroll Services may invoke an involuntary wage deduction recovering the overpayment from future paychecks.
    3. The debt may be submitted to a collection agency.
    4. Washington State University may be required to bring an action against the employee in court.

Each of the last four recovery methods are problematic in one too many ways but what is important to realize is that the legislature took action to increase the employers’ recovery options as a way to reinforce the importance of recovery efforts in the first place. All of the above reinforces the importance of the timely review of the Payroll Expenditure Audit Reports in order to determine if anyone has been over or underpaid or not paid at all.

RCW 49.48.200 provides that any overpaid amount still outstanding at termination shall be deducted from the earnings of the final pay period which may lower the annual leave, sick leave and/or compensatory time payoff amount.

Section 25.80.95 of the Office of Financial Management (OFM) State Administrative and Accounting Manual (SAAM) states:

All agencies are to maintain an effective system of internal controls to prevent salary and wage overpayments as much as possible.

All employees and all agency staff who affect the pay process in an agency including those who approve payroll, enter time, work with personnel actions, calculate payroll, produce payroll, or distribute payroll are responsible to assist in achieving an overall effective system of control to produce accurate timely payrolls.