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Texas Payroll/Personnel Resource

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Overpayments
Additional Agency Responsibility

State Agency Recoupment

A state agency may have a legal obligation to seek the refund of an overpayment of compensation.

State agencies may enter into agreements with an employee or their successors for recoupment of an overpayment through installments.

Effect on Gross Compensation and Other Types of Deductions

Taking a deduction is not a “docking” of pay or a reduction in the gross compensation paid to a state employee for services provided during the payroll period for which the deduction is made. The deduction is a reduction of current pay for a prior pay period.

Example:

A state agency that overpays compensation to a state employee for services provided during September of one year may deduct the amount of the overpayment from the compensation paid to the employee for services provided during October of that same year.

If the agency is using the payroll deduction authority to collect the overpayment, the agency may not reduce the gross compensation of the employee for services provided during October. Instead, the agency will deduct the amount of the overpayment (or in cases where the deduction must be taken over more than one month to collect the entire overpayment amount) by the agreed-upon deduction amount.

The other method for collecting the overpayment through payroll is to adjust compensation or gross pay. If the overpayment is to be collected by adjusting the gross amount, it can be done by adjusting gross pay by the amount (hours x rate) overpaid in the prior period.

Example:

A state agency that overpays compensation to a state employee for services provided during September of one year may adjust the gross amount to be paid for services provided during October of that year. This is done by calculating the amount of overpayment for September (hours x rate) and reducing the gross amount for October.

If an employee payroll deduction was taken from an overpayment of compensation at the time the overpayment occurred, then an adjustment of that deduction must be made in conjunction with the recoupment of that overpayment.

Example:

The amount of federal income taxes and retirement contributions deducted from an overpayment of compensation has to be adjusted when the overpayment is recouped.

Calculating the Hourly Rate for Overpayment of Compensation Deduction or Reduction of Gross Pay

Use the hourly rate of pay in effect during the payroll period of the overpayment to calculate the deduction. The hourly rate will vary from payroll period to payroll period, depending on the number of standard working hours in each period.

Deduction Timing

The deduction may be made:

  • From any payment of compensation.
  • More often than once monthly.

    Example:

    The deduction could be made from each payment of compensation to a state employee who is paid twice monthly or every other week.

Sufficient Salary and Wages to Support the Deduction

If the amount of an employee’s compensation is insufficient to support the deduction after all other deductions with a higher priority have been taken, a portion of the deduction must be taken. This deduction is not an “all-or-nothing” deduction. The amount of the deduction that could not be taken must be deducted in succeeding payroll periods until the full amount is deducted.

Some state employees who agree to refund an overpayment of compensation through deduction but under an installment plan may not have sufficient compensation to pay the deduction. In this case, the amount must be added to the amount of the regularly scheduled installment in the next payroll period. The regularly scheduled installment in the next payroll period is not automatically postponed to the succeeding payroll period.

Deduction Documentation and Adjustment to Payroll Accumulators

State agencies must retain certain supporting documentation in their files on the deduction. The documentation must state the following:

  • Amount of deduction made during each payroll period.
  • Total amount of overpaid compensation being recouped by the deduction, if compensation is being recouped through installments.
  • Type of compensation being recouped through the deduction.
  • Payroll periods the deduction is made for.
  • Number of working hours and payroll period the state employee was overpaid for, if an incorrect number of working hours caused the overpayment.

Agencies must ensure payroll accumulators, such as agency-paid/employee-paid taxes and limits on benefit replacement pay and deferred compensation, are adjusted as required. The Comptroller’s office may require the agency to make available supporting documentation about the deduction and these adjustments during a post-payment audit, pre-payment audit or at any other time.

Deduction Accounting Requirements

A state agency that recoups an overpayment through this deduction must reimburse the appropriate account or fund in the state treasury. This applies to agencies that directly used money in the state treasury to make this overpayment, or initially used local money controlled by the agency to make an overpayment of compensation and was then reimbursed for that overpayment with money in the state treasury.

The agency must credit that reimbursement to the comptroller object that corresponds to the type of compensation recouped.

The reimbursement must be credited to the same fiscal year that was charged for the overpayment. If the fiscal year has already closed, the agency must first deposit the reimbursement in a suspense account and then manually adjust the appropriate accounts.

Sources

Texas Government Code, Sections 666.001–666.003, 666.005, 666.007; Texas Administrative Code 5.40.