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1 Welcome the webinar will begin at 1:00 pm Welcome to the CPA s webinar Salary Overpayments You should be able to read this sample slide If you are having either audio or visual problems during the webinar, please click on the Help button located at the bottom of your screen for troubleshooting During the webinar, if your slide freezes, please log out and log back in Q & A s Phrase Questions in Full Avoid Can you repeat that Time allocated to answer questions 1

2 Other Widgets Twitter LinkedIn Biographies Download and Resources Survey 3 Salary Overpayments 4 2

3 Question I ve heard that sometimes employers need to recover the gross amount paid to an employee and other times the net amount. How do I determine what applies in my situation? 5 5 Payroll errors Types of Repayments Caused by some administrative mistake Includes overpayments and underpayments Repayment of wages Amount becomes repayable if certain conditions are not met 3

4 Agenda Correcting administrative errors Repayment of salary or wage ROE considerations Correcting Payroll Errors Administrative errors Underpayments Overpayments 8 4

5 Poll 9 Impact of Errors Overpayments and underpayments effect: Employee morale Reporting of insurable hours & earnings Deduction and remittance of statutory withholding Legal deductions (garnishments) Company compulsory deductions 10 5

6 Impact of Errors Corrections should be made In a timely manner Accurately 11 Correcting Underpayments Alvin is incorrectly paid when 60 hours is entered instead of 80 hours for the current bi-weekly pay period 12 6

7 Correcting Underpayments If time permits Cancel incorrect pay Replace with correct payment 13 Employee Reports Underpayment 1. Actively listen 2. Empathize don t patronize 3. Collect details 4. Determine course of action 5. Take corrective action 6. Follow-up 7

8 Correcting Underpayments Process an adjustment payment for the shortfall Calculate correct pay Deduct amount already paid Pay the difference 15 Short Payment Worksheet Correct Pay Incorrect Pay Difference Gross wages $1, $1, $ CPP EI Income tax Net Pay $1, $ $

9 Correcting Underpayments 17 When to Issue Adjustment Employment Standards requires payment: For hours worked in the current period On the scheduled pay date No allowance or extension period is addressed Employer may not deny employee payment 18 9

10 Correcting Overpayments Employee should not have been paid these amounts: Incorrect hours processed Wrong rate of pay used Inactive employee paid 19 POLL 20 10

11 Employer s Right to Recover Refer to Employment Standards May require employee s written consent May limit amount to deduct on future pay 21 Recovering Overpayments The following jurisdictions require employee written consent: Alberta British Columbia Northwest Territories Nunavut Yukon 22 11

12 Recovering Overpayments Manitoba limits deduction from future pay: An amount that could be seized or attached by garnishment (30% of net pay); or A greater amount if employee provides written consent 23 Advising Employee Employee should be notified of payroll error If overpayment cannot be recovered from the next pay propose repayment schedule 24 12

Repayment Letter Sample To: [Employee Name] RE: RECOVERY OF AN OVERPAYMENT This is in regards to an overpayment made to you as a result of [explain in detail what the cause of the overpayment was].

13 Repayment Letter Sample To: [Employee Name] RE: RECOVERY OF AN OVERPAYMENT This is in regards to an overpayment made to you as a result of [explain in detail what the cause of the overpayment was]. The total amount overpaid to you is [$ ]. I am requesting that a cheque in the amount of [$ ] be forwarded to our office by [3 weeks from the date of the letter]. Alternatively, you can repay by [$ ] monthly instalments with post-dated cheques or [$ ] through bi-weekly payroll deductions. If you agree to pay the above amount through bi-weekly payroll deductions, please sign below and return this letter. 25 CRA Policies on Overpayments Repayment in the same tax year Employee repays net overpayment YTD earnings and deductions corrected Employer adjusts next CRA remittance 26 13

14 Overpayment Same Year Example: Eric is overpaid $300 gross and agrees to repay the net overpayment on his next pay 27 Do Not Adjust Gross on Next Pay Incorrect calculation of statutory deductions EI insurable hours/earnings misrepresented May impact other deductions Pension plan Union dues Garnishments Benefits 28 14

15 Determine Net Overpayment Correct Pay Overpayment Difference Gross wages $1, $1, CPP EI Income tax Net Pay $ $1, Post Adjustments Update employee YTD earnings and deductions Include adjustment on next CRA remittance 30 15

16 CRA Policies on Overpayments Repayment in following tax year Employee repays gross overpayment T4 is amended Employer completes form PD24 31 Overpayment Different Year Example Maria was overpaid $100 each month since September of last year. The error was not detected until March of the current year 32 16

17 Prior Year Overpayment $400 gross from prior year is repaid Amend the T4 to reduce income Employee will be refunded when tax return is filed Follow current year process to recover net of $200 overpaid this year 33 Adjust Income Reporting on T4 Slip 34 17

18 Employer Refund of CPP and EI If employer has overpaid complete and file form PD24 35 Year-end Reporting When to amend the T4 At the time the employee agrees to repay Even if repayment is pending 36 18

19 Year-end Reporting Employee fails to repay employer Report as income in the tax year repayment was to have been made Example: Mabel was overpaid in 2016, agrees to repay in Gross income was adjusted on 2016 T4. Mabel fails to repay, overpayment is reported as income on 2017 T4 37 Year-end Reporting Overpayment reported as income in year of payment if: Employer forgives overpayment Employee refuses to repay 38 19

20 Summary Repayment Year Repaid in current year Repaid in following year Net Amount to repay Adjust T4 boxes 14, 16, 18, 22, 24, 26 Gross 14, 24, 26 Refund of employer CPP/EI Yes, adjust next remittance Yes file form PD24 39 RQ Policies on Overpayments Employee is always required to reimburse the gross No adjustments to RQ remittances permitted 40 20

21 RQ Repayment in Same Tax Year Correct Pay Overpayment Difference Gross wages $1, $1, QPP EI QPIP Federal tax QC tax Net Pay $ $ Post Adjustments Reduce gross income by $300 Adjust YTD EI and federal income tax Recover overpayment on next CRA remittance 42 21

22 Refund of QC Deductions Employee will be refunded any overpayments when QC tax return is filed Employer may send written request to RQ to recover any overpaid employer share of QPP and QPIP 43 Summary Repayment Year Repaid in current year Repaid in following year Amount to repay Gross Adjust T4 boxes 14, 16, 18, 22, 24, 26 Adjust RL-1 boxes A, G, I Gross 14, 24, 26 A, G, I Refund of employer QPP/QPIP Yes, request in writing from RQ 44 22

23 Taxable Benefit Consideration Repayment in installments will create a loan taxable benefit Taxable benefit is determined using CRA prescribed interest rate Currently 1% 45 Taxable Loan Benefit Employee overpaid $300 Agrees to repay at $50 bi-weekly Loan Balance Interest rate Bi-weekly Taxable Benefit $300 1% $0.12 $250 1% $0.10 $200 1% $

24 Poll 47 How to Avoid Errors 1. Review all manually keyed data 2. Keep a list of employees on LOA 3. Validate final day of pay for terminating employees 4. Have 2 nd review of payroll entries 5. Automate time & attendance 6. Communicate deadlines 48 24

prior to earning A signing bonus contingent on remaining an employee for a certain period Maternity top-up

25 Repayment of Wages An employee receives a payment as per: Company policy Contractual agreement May be required to repay under certain conditions 49 Repayment of Wages - Examples Advanced vacation pay, terminates employment prior to earning A signing bonus contingent on remaining an employee for a certain period Maternity top-up contingent on employee returning to work after leave Salary continuance while wage-loss benefit claim being adjudicated 50 25

26 Repayment of Wages These amounts are reported in the year of payment as: Taxable income Pensionable income Insurable income No amendment to T4 upon repayment 51 CRA Treatment Employee must repay the gross Do not amend T4 slip Provide a letter detailing: Amount paid Date of payment Reason for payment Tax year reported as income on a T

27 Repayment Letter Sample February 1, 2017 On February 1, 2017 Mr. Aldo Martinez made a repayment of salary to XYZ Corporation in the amount of $3, This amount represents a salary continuance that was provided during a sick leave while his application for wage-loss benefits was pending approval. This amount was originally paid and reported as employment income on Mr. Martinez s 2016 T4 slip. Sincerely, Payroll Manager 53 RQ Treatment Repayment in the same year Employee repays gross Amend RL-1 slip, reducing Box A 54 27

28 RQ Treatment Repayment in following year Employee repays gross Record footnote Code A-3 and amount repaid 55 Repayment Summary Amount to repay Adjust T4 Adjust RL-1 Refund CPP & EI Refund QPP & QPIP Gross No provide employee with repayment letter Current year reduce Box A Following year report footnote A-3 No refund amounts remain pensionable and insurable No refund amounts remain pensionable and insurable 56 28

29 Repayment of Vacation Employee allowed to take vacation prior to earning Signed agreement to repay Should I leave [name of organization] prior to [end of vacation reference period], I authorize an adjustment to my final pay to compensate for the gross amount of vacation paid but not earned. 57 Partial Repayment Employee received signing bonus of $10,000 Conditional upon remaining with employer at least 6 months Employee resigns after 4 months and only repays the net bonus of $6,

Partial Repayment Payment of $10,000 remains as employment income on T4 Provide repayment letter for the $6,000 59

30 Partial Repayment Payment of $10,000 remains as employment income on T4 Provide repayment letter for the $6, Repayment from Workers Compensation Salary continued by employer WCB reimburses employer for approved claim amount 60 30

31 Report WCB Reimbursement 61 RQ Reporting CNESST Refunds CNESST requires an advance equal to 90% of net wages that would have been earned in the 14 days following the injury No reporting - this is an advance 62 31

32 RQ Reporting CNESST Refunds If employer continues regular salary until claim is approved: Current year repayment reduce earnings in RL-1 slip Box A Repayment in a following year report as footnote A-3 63 Poll 64 32

33 ROE Considerations Insurable hours or earnings associated with payroll errors should not be reported on ROE Only hours and earnings actually earned should be reported 65 ROE Considerations ROE issued with hours and earnings paid in error Amend ROE: Correct final date for which paid Adjust Blocks 15A, 15B and 15C 66 33

34 ROE Considerations Employer forgives overpayment Earnings are insurable in pay period in which forgiven No insurable hours 67 ROE Considerations Repayment of wages No amendment to ROE Hours and earnings remain insurable 68 34

35 Poll 69 Q&A 70 35

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39 Payroll Best Practice TM Guidelines Pay Statement - Free for non-members Getting Ready for a Payroll Audit Setting up a New Payroll In Canada Mergers and Acquisitions Death of an Employee Employee or Self-Employed Statutory Holidays Salary Overpayments Social Insurance Number New Hire Termination Canada Pension Plan Changes Province of Employment Payroll Continuity Changing Payroll Frequencies Thank-you for participating! Please remember to take our survey. You can access it by clicking on the widget at the bottom of your screen 78 39

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An Introduction to Canadian Payroll Presented by Natasha Smyth BSc (Agr), CPM Vice President, OnPayroll.ca This is me! Over 8 years of Canadian Payroll experience Certified Payroll Manager Member of the