Request for Employee Acknowledgment of a Wage Overpayment Letter

Author: Alice Gilman

When to Use

The below letter may be used to inform an employee of an inadvertent overpayment of wages, secure the employee's acknowledgment of the overpayment and obtain the employee's authorization to recoup the overpayment via payroll deductions.

Customizable Letter

[insert organization's logo, name and address]

[insert date]

[insert recipient's name]

[insert recipient's physical address (and/or email address if applicable)]

Subject: Wage Overpayment

Dear [insert recipient's name]:

Our records indicate you were overpaid a net amount of  $[insert dollar amount] for the pay period ending [insert date, including year]. Please complete the below Employee Acknowledgment of Overpayment/Authorization to Reduce Wages indicating that you acknowledge that you were overpaid and the amount of the overpayment, and select one of the options authorizing [insert employer's name] to make pay deductions to recoup the overpayment, starting with the pay period ending on [insert date].

If you prefer, you may write a personal check payable to [insert employer's name] for the [insert "net" if the error and correction are made in the same calendar year, or "gross" if the correction is made in a subsequent calendar year] amount of the overpayment. If you choose this option, please so indicate by selecting the appropriate option below.

[insert closing (e.g., Sincerely, Very truly yours,)]

[insert handwritten signature (for a mailed letter) and typed signature]

[insert sender's title]

[insert enclosure line as applicable (e.g., Enclosure or Enclosures)]

EMPLOYEE ACKNOWLEDGMENT OF OVERPAYMENT/AUTHORIZATION TO REDUCE WAGES

[insert recipient's name]

[insert recipient's ID number]

[insert recipient's department, if applicable]

I have been notified of an overpayment in the [insert "net" or "gross", as applicable] amount of $[insert dollar amount] for the pay period ending [insert date]. I agree that an overpayment has occurred. I acknowledge that I have the right to dispute the amount of the overpayment, but I knowingly and without coercion hereby waive that right.

I elect the following method of repayment:

[insert one of the following options, as applicable:]

[Option 1:

___ I authorize [insert employer's name] to reverse the net amount of the direct deposit of my wages, in the amount of $[insert dollar amount] by [insert a date that is not more than five days from the date of the erroneous payment].

___ I authorize [insert employer's name] to deduct the net overpayment from my future wages in a lump sum.

If you do not want the deduction to be made in a lump sum, specify the amount you want to have deducted in each pay period, and the number of pay periods over which you want these deductions to be made: _________

___ I elect to repay the overpayment by personal check (attached).]

OR

[Option 2:

___ I authorize [insert employer's name] to deduct the gross overpayment from my future wages.

If you do not want the deduction to be made in a lump sum, specify the amount you want to have deducted in each pay period, and the number of pay periods over which you want these deductions to be made: _________

___ I elect to repay the gross overpayment by personal check (attached).

If you cannot repay the amount in a lump sum, specify the amount you will pay back each pay period, and the number of pay periods over which you will write checks:_________]

Employee Signature: ________________________

Date: ____________________________________

FOR PAYROLL OFFICE USE ONLY:

[insert date keyed]

Tips

For a wage overpayment that is corrected in the same calendar year, the employee must pay back the net amount (i.e., the amount remaining after taxes are withheld). The employer also must send the employee a separate form requesting the employee's consent to permit the employer to apply for a refund of the excess FICA taxes. The employee should be given 45 days to respond. If  the employee does not respond, the employer may then apply to the IRS for a refund of the employer's share of FICA taxes paid.

For a wage overpayment that is corrected in a subsequent calendar year, the employee must pay back the gross amount. Upon settlement of the overpayment, the employer must pay back the overwithheld FICA taxes to the employee. The employee must provide the employer with a signed and dated statement acknowledging the reimbursement of the overwithheld FICA taxes and certifying that he or she has not and will not seek a reimbursement from the IRS for those taxes.

An employer should send this letter by certified mail, return receipt requested. If the employee does not respond within 30 days of the date the letter was mailed, or responds negatively to the repayment request, the employer should send the employee a second certified letter giving the employee the opportunity to dispute the fact that a wage overpayment occurred and/or the amount of the overpayment.

The sender's address is usually included in letterhead. If not using letterhead, include the sender's address at the top of the letter one line above the date. Do not write the sender's name or title, as it is included in the letter's closing. Include only the street address, city and ZIP code.

Warnings

The above letter is a model letter. If necessary, the letter should be modified to comply with any applicable state and local laws.

An employer can reverse a direct deposit of wages only if it discovers the error within five business days after the pay day and the applicable state law permits reversals (state laws vary). Partial reversals are not permitted; an employer must reverse the entire deposit. An employer must comply with both federal and state law in this regard.

If an employee writes the employer a personal check in the amount of the overpayment, the employer should keep the receivable open on its books until the check clears.

If the check does not clear, the employer should discuss the matter with the employee to ensure that the employee's error was inadvertent. If the employer determines that the employee deliberately wrote a check that the bank will not honor, the employer should consider the employee to be in dispute of the overpayment and escalate the matter by sending the second certified letter noted above.

Additional Resources

How to Recoup a Wage Overpayment

How to Obtain an Employee's Consent to Claim a Refund of Overwithheld FICA Taxes

Request an Employee's Consent to Claim a Refund of Overwithheld FICA Taxes - Form

Advise an Employee of Pay Deductions to Recoup a Wage Overpayment Letter

Recoup a Wage Overpayment - Worked Example