Overpayments

Overview

Overpayments may occur due to administrative error; job records not ended on time, work schedule/default hours not ended correctly, or data entry/time reporting errors during time entry. Both the employing unit and University Payroll have responsibilities to resolve overpayment situations pursuant to OBFS Policy and/or Internal Revenue Code (Publication 15).

Department Responsibility | University Payroll Responsibility | Overpayment Collection Process | Overpayment Service Fee | Service Fee Appeals Process | Overpayment Process Guide for UnitsAdditional Overpayment Situations/Information

Departmental Responsibility

It is the responsibility of the employing units to notify employee of the overpayment and notify University Payroll & Benefits to initiate the collection process for overpayments (submit ANA).

Sample overpayment notification letter for units (MS Word).

Employing units will be responsible for a service fee for overpayment amounts collected.

The following table provides a guideline to resolving overpayments based on the disposition of the payment.

Status of Payment ANA Transaction Adjustment Result
Current pay period, not calculated Current pay period correction N/A Overpayment prevented*
Current pay period, not distributed Pay Stop Submit adjustment for correct pay due Overpayment prevented*
Prior pay period Overpayment N/A Initiate collection process

*These transactions do not result in assessment of Payroll Service Fee.

Note: If a job record error is the cause of the overpayment the department representative must submit a HR Front End (HRFE) transaction as required. 

  • Employing units should act as a liaison between University Payroll and the employee, ensuring that the employee understands the procedures for collection as described below under Overpayment Collection Process.

  • Unit representatives should facilitate contact with Payroll Customer Service in order to assist the employee in making repayment arrangements, or to request a review.

When arrangements are agreed upon, the employing unit must ensure that the employee understands that there may be tax implications. Employing units will receive notification from University Payroll regarding terms of any arrangements made.

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University Payroll Responsibility

Processing

It is the responsibility of University Payroll to process ANA transactions following the collection process guideline. In general ANA transaction will be processed promptly to ensure collection where possible.

Transaction Processing Deadline
Pay Stop 5 pm 2 days before payday
Current Pay Adjustment 5 pm day of scheduled calc
Prior Pay Adjustment - over Day before payday - present

Communication

University Payroll will use employee's mailing address or permanent address (PR) in Banner for all correspondence in reference to overpayments along with an electronic copy via email. The contact person for the employing unit identified in the ANA transaction will receive an electronic copy.

When an employee enters into a repayment arrangement, University Payroll will notify the unit contact of the terms.

Upon full collection of an overpayment, the employing unit and the employee will receive an "Overpayment Closed Notification" letter. 

An overpayments report will be available in View Direct at the beginning of each month providing details on the prior month overpayment activity.

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Overpayment Collection Process

University Payroll Collection Process is determined by: 

  • The status of the pay event (disposition of pay event)

  • The status of the employee (active, terminated)

  • The gross amount (less than or greater than 20% of regular gross pay)

  • Whether the overpayment occurred in the current tax year or a previous tax year (Internal Revenue Code - Publication 15)

If an overpayment cannot be prevented and the employee receives the overpaid amount, the employing unit must initiate the overpayment (ANA) process and notify the employee of the overpayment. Payroll will notify employee and begin collection activities.

If an overpayment cannot be prevented and the employee does not receive the overpaid amount because the unit does not distribute the payment (paper check), the employing unit must initiate the overpayment (ANA) process and return to University Payroll the original check with the completed Return Payroll Checks/Overpayment Remittance Form (MS Excel).

Overpayment Service Fee

Units will be charged the Payroll Service Fee for overpayment amounts collected:

  • 6% of all amounts collected

  • Assessed monthly on previous month’s collection activity

  • Fee will be posted to the C-FOAPAL overpaid, or as indicated in ANA

  • Fee will post by automated Journal Voucher process at the beginning of each month

  • Current Pay Event adjustments and Pay Stops in ANA will not be assessed the service fee

Other posting considerations:

  • Description on journal voucher transaction will be “Payroll Service Fee” and will identify UIN and Pay Period

  • To transfer charges to a different FOAPAL, a JV will need to be initiated by the unit

  • Corrections to JV entries related to the Payroll Service Fee will be limited to the current fiscal year only

Service Fee Appeals Process

  • If a service fee is thought to be unfair, unit should contact their campus Payroll Customer Service center

  • Appeal must occur within same fiscal year as the fee

  • Customer Service representatives can determine if fee should be refunded

  • Option is available to meet with Payroll Management if agreement cannot be reached with Customer Service Representative

  • Meeting will be set up to occur within 30 days (except near the fiscal year end)

  • Decision regarding the refund will be rendered within 5 business days.

  • Fee will be refunded/reversed at the end of each month

Overpayment Process Guide for Units

The following steps will aid employing units in following the collection process.

Step1: Initiate Process Process ANA transaction as Pay Event Adjustment (Prior - Overpayment) and notify the employee of the overpayment (Sample notification letter for units) (MS Word). If the unit is holding the paper check they should indicate in the ANA comments, "Holding original payroll check and returning to University Payroll."
Unit will identify C-FOAPAL(s) to credit overpayment repayments and to charge Payroll Service Fees.
Step 2: Receive University Payroll's Notification Receive Notification from University Payroll
  • If the gross amount of overpayment is 20% or less of the regular gross pay, University Payroll will send an "Overpayment Notification" to the employee and the unit indicating the overpayment amount.

  • If the overpayment amount is more than 20% of the regular gross pay, University Payroll will send an "Overpayment Notification" to the employee and the unit indicating the overpayment amount. The employee will be given a two-week deadline to contact payroll to make repayment arrangements or to request a review.

Step 3: Payroll collection process
  • If the unit is holding the paper check, return it to University Payroll with the completed Return Payroll Checks/Overpayment Remittance Form (MS Excel). University Payroll will send the unit and employee an "Overpayment Closed" notification when the overpayment amount has been fully recaptured. Unit must submit any correcting adjustments if needed.

  • If the gross overpayment amount is 20% or less of the regular gross pay, University Payroll will collect the overpayment amount from the next available pay event or adjustment. When University Payroll recaptures the overpayment, the unit and employee will receive an "Overpayment Closed" notification.

  • If the gross overpayment amount is more than 20% of the regular gross pay, University Payroll will collect the overpayment amount from the next available pay event or adjustment after the deadline on the Overpayment Notification.

    • If employee has active payroll, University Payroll will attempt to recapture overpayment amount on upcoming pay events following the deadline until fully recovered.

    • If the entire overpayment can be recaptured in the current calendar year, University Payroll will reduce the gross wages on upcoming pay events until full payment has been collected.

    • If the overpayment cannot be recaptured in the current calendar year, University Payroll will process a partial reversal to credit the departmental expense account for deductions withheld. Employees' W-2 record will be appropriately adjusted as defined by IRS Code. University Payroll will set up a payroll recapture deduction (MPP) to recapture the net amount owed.

    • If the employee is inactive, payment can be delivered to Payroll Customer Service. University Payroll will process a partial reversal to credit the departmental expense account for deductions withheld. Once full payment has been received employees' W-2 record will be appropriately adjusted as defined by IRS Code.

Step 4: Facilitate Communication with Employee Once the Overpayment Notification Letter has been received from University Payroll, the unit should be prepared to communicate with the employee and Payroll Customer Service.
  • If employee requests to repay overpayment with personal check, money order or cash, the net amount owed needs to be requested from University Payroll by contacting Payroll Customer Service. Employee may take payment directly to Payroll Customer Service or to the unit along with the "Overpayment Notification" showing net amount owed. If unit receives payment, see instructions in step 5 below.

  • If employee desires to make repayment arrangements in order to spread out payments, then Payroll Customer Service must be contacted to set up a repayment schedule. University Payroll will notify unit of the terms of the arrangement.

  • If employee requests a review of the overpayment, a meeting will be set up within 30 days with the individual, unit representative and the Director of Payroll (or designee) in order to seek resolution. Please contact Payroll Customer Service to request a review.

Step 5a: Unit Collection Process - checks / money order / cash payments
  • Submit the payments collected via check or money order from the employee to Payroll Customer Service within 2 business days of receipt, enclosed with the Return Payroll Checks/Overpayment Remittance Form (MS Excel).

  • For cash payments, refer the employee to Payroll Customer Service for depositing.

OR
Step 5b: Collection Process for inactive employees
  • University Payroll will track and submit a detailed file to USFSCO on a biweekly basis of all inactive employees that have not responded to communication sent concerning the overpayment owed.

  • If the employee is in an inactive status USFSCO will attempt to contact the individual by sending two letters followed up w/ phone calls in an effort to collect overpayment owed.

  • If no response is received from the employee after 60 days USFSCO will automatically turn the overpayment account over to a third party collection agency for processing.

  • Collection agency commission charges, ranging from 25% - 40% of the total amount collected, will be the responsibility of the employing unit and will be charged to the original FOAPAL of the overpayment unless a different FOAPAL is provided by the Unit.

  • All funds collected from the 3rd party collection agency will be turned over to USFSCO on a monthly basis. USFSCO will transfer the funds to University Payroll no later than the 20th of each month. University Payroll will credit your departmental expense account.

Step 6: Credit posted from Payroll Upon receipt/recapture of overpayment amounts, University Payroll will credit your departmental expense account for the FULL gross overpayment amount within 5-10 business days unless otherwise communicated.

University Payroll will provide the FOAPAL identified in the ANA to USFSCO for processing a journal voucher to charge the department for all applicable 3rd party collection fees.
Step 7: Payroll service fee posted At the beginning of each month, payroll will post a mass journal voucher to assess the payroll service fee for all overpayment collections from the prior month. The Overpayments report will be available for viewing in View Direct at the beginning of each month.

Additional Overpayment Situations/Information 

  • If an overpayment involves a grant, Federal agriculture, special state appropriations or any other fund that may change or close before recapture, unit should follow this process:

    • Unit transfers (PZAREDS-Labor Redistribution) overpaid amount from the Grant to an unrestricted FOAPAL
    • Once Labor Redistribution is at disposition 60, complete the ANA transaction
    • Unit enters unrestricted FOAPAL in “FOAPAL to credit repayment” section in ANA
    • Unit enters any appropriate unrestricted FOAPAL to charge fee to in ANA
    • Contact local Grants & Contracts office if additional assistance is needed
  • Overpayments that span fiscal years - If an overpayment occurs in one fiscal year and the repaid funds are received from the employee in a new fiscal year the funds will be credited to the department's account for the current fiscal year. Funds on state accounts lapse and will not be credited if received from the employee in a new fiscal year, unless they are received prior to the end of the lapse accounting processing period. The funds will revert to the State if received after the lapse processing period. It is recommended that the unit redistribute the payment to another fund to ensure proper credit when amount is repaid.

  • Overpayments that span calendar years - The Internal Revenue Service (IRS) has defined the calendar year (January 1 through December 31) as the reporting period for which salary and wage payments are reported on Form W-2. The IRS has defined the method of constructive receipt to determine which calendar year a payment is reported in. If salary and wage payments are available to employees any time during the calendar year, the payments are considered paid in that year and reportable on Form W-2 for that calendar year. If a repaid amount is received in a subsequent year, University Payroll cannot adjust the wages on a W-2 for the year in which the payment was received. See IRS Publication 15 for more information on Wage Repayments.

  • The University may only adjust the Medicare and or Social Security taxes, if applicable, for a prior calendar year by issuing Form W-2C, Corrected Wage and Tax Statement. Because the employee received and had use of the funds during that tax year, wages paid in error in a prior year remain taxable to the employee for the year in which they were received.

  • To recover income tax on repaid wages the employee is entitled to either a deduction or credit, depending on the amount repaid, on his/her income tax return in the year the wages were repaid. The employee should not file an amended tax return. University Payroll will issue a statement of receipt of funds indicating the amount repaid from an overpayment in a previous year. The individual can offset income on his/her tax return in the year in which the repayment was made. The statement of receipt can be used to determine the amount to offset.

  • If an employee is not active because he/she is on leave, lay-off, or has sporadic employment, then the unit may notify payroll of the expected return-to-work date in order to facilitate better collection results.

  • Workers compensation claims resulting in an overpayment should be reported immediately.

  • When University Payroll processes the reversal or credit transaction for the overpayment, the full amount for Tax Deferred Annuity (403B) deductions may not be recaptured. When this occurs, University Payroll will charge departments for any shortages that transpire. Shortages may occur due to market fluctuations that result in a reduced market value for the contribution originally invested.

  • Please notify University Payroll immediately if you learn an overpaid employee has transferred or recently become active in a different unit/department/org.

  • Physical locations of Payroll Customer Service offices by campus:

University of Illinois at Chicago
Payroll Services
MAB Room 106, M/C 547
809 S. Marshfield Ave
Chicago IL 60612

Fax: (312) 996-1932
University of Illinois at Springfield
Payroll Services
One University Plaza, HRB 105
Springfield IL 62703-5407


Fax: (217) 206-7010
University of Illinois at Urbana-Champaign
Payroll Services
HAB, Room 100A North, M/C 318
506 South Wright Street
Urbana IL 61801
Fax: (217) 244-1908

Help Desk phone line:

  • UIUC: 217-265-6363

  • UIC: 312-996-7200

  • UIS: 217-206-7211


Email for payroll inquiry: payinq@uillinois.edu

Policy on overpayments can be found in Section 4, Payroll of the Business and Financial Policies and Procedures manual. 

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Last Updated: July 1, 2011