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Payroll Manual

Overpayment Recovery

Overpayments in paychecks can be the result of various processes on both the agency and OSC side. Regardless of the cause and source of the overpayment, instructions for recovery are extensively documented and must be carefully followed.

The recovery of overpayments is governed by Section 200.3 of the State Finance Law which has been revised and states the following:

"(a) In any case where a state employee has, as a result of an administrative error, received salary or other compensation payments in excess of that to which he or she was entitled, the state will not attempt to recover such overpayment, except in those cases described in paragraph (b) of this subdivision.

Notwithstanding the foregoing, the state will, where such overpayment is still continuing, immediately reduce the employee's current salary so that the salary paid to such employee prospectively is the salary the employee is entitled to receive.

(b) Nothing contained in paragraph (a) of this subdivision shall prevent the state from recovering, by offset or otherwise, any overpayment made (i) for a period when the employee was neither performing services for the state nor on approved leave or (ii) under circumstances where the comptroller reasonably determines that the employee knew, or that a reasonable employee should have known, that the salary paid to him or her was in excess of that which he or she was entitled to receive."

Although the above seems to limit the recovery of overpayments, when an employee is overpaid the agency must begin the process to recover the overpayment in order to determine if all the criteria for recovery are met. The employee must be given due process. Reasonability must be established. Employees know when they did not work due to absence, they are aware of when they work overtime, or when they have been removed from a night shift. A reasonable employee is expected to be aware of his general biweekly earnings and what it is expected to cover. Whatever the outcome of the due process, information must be entered into General Comments about if, why and how the recovery will be resolved. OSC will review the information and the issue to be resolved.

Overpayments occur when:

  • The salary is incorrectly increased
  • The employee is removed from the payroll and has received paycheck for which they are not entitled
  • Additional earnings, such as location and inconvenience pay, are not ended in a timely manner
  • Payments are submitted and paid to which it is determined that they are not entitled, i.e., overtime, holidays or LLS payments.
  • System issues when processing transactions that cause the retro process to incorrectly calculate a retroactive payment

Once the agency finds that the employee is overpaid by either their own review or notification, the agency must begin the recovery process, carefully documenting all steps. Overpayments can be recovered by sending back the incorrect paycheck, setting up an overpayment on the Additional Pay page or allowing the automatic retro process to recover the overpaid amount. Refer to bulletin 470.

As soon as possible, the agency must:

Notify Employee:

  • The Agency must immediately notify the employee, in writing, of the amount overpaid and the method of recovery. Recovery is done as 10% of the employee’s biweekly paycheck. The employee has the opportunity to dispute the recovery and the amount to be recovered.
  • Timely notification of the overpayment to the employee before the check containing the overpayment is released to the employee and/or direct deposited will ensure overpayment recovery, even for an overpayment that is “generally not recoverable.”

Correct Payroll Record:

  • The Agency must immediately correct the employee’s payroll record by submitting the appropriate transaction on the applicable page, using the correct effective date(s) to affect the accuracy of historical and current data. If necessary, the agency should contact OSC to correct any historical rows in order to stop any ongoing overpayment.
    • Overpayments Resulting from Job and Additional Pay Transactions: For these overpayments that generate an automatic negative retroactive adjustment by the system, the agency must report the method of recovery on the General Comments page. If the agency is recovering the overpayment by setting up an overpayment recovery on Additional Pay or returning a paycheck, the agency must tell OSC to “turn the automatic retro off”.
    • Time Entry Corrections: For overpayments resulting from an error made in reporting miscellaneous earnings (i.e.: number of hours, days, units, or amount was reported incorrectly), the Agency must use the same Earnings Code with a minus sign to recover the earnings as was used originally to report the earnings. Note: The agency must not report negative earnings in the Time Entry page unless the employee is receiving other earnings (regular and/or miscellaneous) in the same pay period.

If it is determined that the overpayment will be recovered, the agency must set up an Overpayment on the Additional Pay Page to set up a recurring repayment. The overpayment process on the Additional Pay page is a Biweekly earnings and will take the same amount of money from each paycheck until the Goal Balance (overpayment) is satisfied.

Overpaid earnings can span multiple years. In order to assure that the earnings are taxed correctly in the year they were paid, special earnings codes have been established to denote the year that the earnings were overpaid and credit the recovery to the year the money was overpaid. Refer to Bulletin 1037 and 1038.

Agency Tips to Avoid Overpayments or Ensure Recovery

  • Establish or improve internal controls to ensure timely and accurate payroll reporting.
  • Improve communications and business processes that exist between Personnel and Payroll offices.
  • Contact the auditor or salary analyst to request permission to enter an “Additional” transaction when the Agency receives information after the Agency submission deadline of a transaction that must be entered in order to prevent an overpayment.
    • If approved, the Agency may enter the transaction into the payroll system and fax or e-mail the appropriate “Additional” information to the auditor or salary analyst on a signed Payroll Certification Form (AC3202). The Agency must follow all other applicable procedures related to the type of transaction entered. The auditor or analyst will report all “Additional” requests on the Agency Correction Report.
  • Provide timely, written notification to employees with regard to salary, additional pay earnings, and payroll calculations upon initial appointment and whenever salary and/or Additional Pay changes are made thereafter.
  • Establish or improve communications and business processes to ensure Agency employees fully and clearly understand rules and eligibility criteria pertaining to salary, additional pay, miscellaneous earnings and cyclical payments. Provide written documentation, as appropriate.
  • Ensure Agency employees fully and clearly understand the reporting information on their pay stubs by providing the appropriate training and written documentation.
  • Immediately notify the employee in writing of the amount overpaid when an overpayment of regular, additional pay