Processing an Employee overpayment that has been refunded.

Legacy KB ID: 4195

Question

I recently overpaid an employee.  He has now refunded the overpayment.  How do I process this to ensure all relevant components of the pay are properly adjusted and that a correct payment summary will be produced at the end of the year?

 

Answer

The exact steps that you need to follow will vary depending on the circumstances.  This article will outline the steps to take where the net overpayment has been refunded so that PAYG tax and super contributions are adjusted. 

 

Solution

Step 1:  Create necessary Accounts and payroll items

1.    Suspense Account Overpayments – type: Other Current Asset

a.    This account will receive the employee’s refund and partially fund a later pay

2.    Other Wages item to reverse the overpayment:

a.    Wages > Other

b.    Name:  Overpay recovered

c.    Expense Account:  Payroll Expenses:Salary&Wages (the same account the overpayment was made from)

d.    Tax Tracking Type: Gross Payments

e.    Taxes:  PAYG and State Payroll ticked

f.     Go to the Super Item:  ensure this item is included in the list of payroll items for the calculation of super.

3.    Additional payroll item:

a.    Additional

b.    Name:  Overpaid Recovered

c.    Expense Account:  Suspense Account Overpayments (created at 1. above)

d.    Tax Tracking Type:  None

e.    Go to the Super Item: ensure this item is NOT included in the list of payroll items for the calculation of super

 

Step 2:  Accept the refund from the employee for the difference in the net pay amount

  1. Banking > Deposit > Received from Employee > from Account: Suspense Account Overpayments > Amount: difference in net pay

 

Step 3:  Process next pay

  1. Complete normal pay for the period
  2. In Earnings, add the Other Wages item Overpay Recovered, enter the amount of the Gross difference and enter -1 (minus one) in the Quantity column (this is now a negative payroll item)

Note: negative payroll items are acceptable provided the Net Pay is positive.  You cannot process a pay with a negative Net Pay.

  1. In Other Payroll Items, add the Additional item Overpaid Recovered and enter the amount of the net difference
  2. Note changes in the Super and PAYG Tax amounts – these amounts should be lower by the amount of the overpayment to these components in the overpaid pay run
  3. Do a QuickReport on the Suspense Account Overpayments to see the difference of the net amount credited and then debited so that the balance is now nil (0.00). 

 

Your accounts, payroll liabilities and payment summaries will be properly adjusted as if the overpayment never occurred.

 

Additional Information

You will need to make adjustments to these steps for other conditions like:

  • Employee has not refunded the overpayment;
  • The overpayment occurred in a previous financial year
  • The overpayment pushed the employee into a higher marginal tax bracket

Refer to your Accountant for further directions. 


Another method has been provided by Accredited Partner Suzanne Lockwood on the Reckon Community here.


Need more help?

Ask the Reckon Community at: https://community.reckon.com/reckon.




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