Payroll Fiscal Direct Deposit Authorization Form - Texas A&M: Fill & Download for Free

Absolutely first, you should notify the employee, or group thereof, that there was a payroll mistake that led to him/them getting more money than they were due. Do this as quickly as feasible. Print out a copy of their paystub, and show them how the error was made.You should check your local and state labor laws, and the applicable federal labor law, to make sure that you have the authority to make a deduction from a future paycheck to rectify this problem. In Texas, if you overpay an employee and you can’t fix the mistake before the check has been cashed, or the direct deposit has been made, or the payroll reports have been submitted to the IRS/Treasury (etc.), you can, legally, make a future withholding in order to compensate yourself (i.e., the business) for the mistake, if you notify the employee(s) affected and you only take back what is yours. For instance, I wouldn’t charge interest on it and treat my own mistake as some sort of loan or payday advance; that would not be legal.You’re not required to take the money back, but most employers would choose to do so, for employee income tax reasons. If someone worked 39 hours, and you paid him for 40, then his W-2, which he’ll receive and use to fill out his income tax returns, will show an increased income amount. It will not match reality. — That’s a tedious accountant’s argument. A shorter way to say it is that the employee should have the choice to keep the money or give it back, if keeping the money is an option. You, the employer, do not know the personal financial situation of an employee, nor should you assume to or try to. A significant overpay (e.g., a series of overpayments, not just a one-time occurrence) may cause an employee no longer to qualify for various government benefits, like disability or food stamps, et alia.You really do not want to be responsible for something like that. You might find that, after all is said and done and W-2s have gone out and people have employed tax professionals to do their tax returns, and you have done the same, that the employee then asks you to correct your mistake, leading to you having to amend your own payroll tax and income tax filings, making you more at risk for audit; and, you’d be responsible, civilly, for reimbursing the employee for any professional fees (think: CPA expenses) they incur due to your mistake; and, if you refuse to correct the mistake, then you may end up in a legal battle you’re going to lose (think: attorney’s fees, costs of court, damages).You, as operator of the business, have a vested interest in making sure the documents you produce (e.g., financial statements) match your operational realities. — That’s Financial Accounting 101. — It’s not just that most business operators would want to minimize payroll expenses and maximize profits, and therefore take advantage of the opportunity to recover payroll overpayments; it’s also that failing to do so increases your exposure to risk.Remember, the employee, or you, may not figure out this overpayment was made for weeks, months, or years. If you don’t make sure your stuff matches reality, period after period, you may find yourself trying to correct a mistake years in the future, when the employee no longer works there; the payroll clerk who made the mistake is no longer there, and you end up acting in a “forensic” capacity.That takes time, and time is money. So, fix the mistake, even if you think it’s small; even if your employee protests, because he or she wants to keep the extra money.With everyone involved now convinced it’s in the best interest of everyone that the problem be fixed (or not — like I said, in Texas, the employer legally can deduct money from an employee’s future paycheck if that employee has been found to have received an overpayment on a past paycheck), use a simple contract to record the transaction.If you can’t remake the check or re-do the direct deposit, then you will need to make a change to a future paycheck that affects the employee’s federal withholding and FICA taxation; similarly, the change you make should reduce the business’s employer matching taxes and federal and state unemployment “premiums”.If it’s an hourly employee, and you paid 40 hours at $15/hr when it should’ve been 39 hours at $15/hr, then the easiest mechanism is just to subtract 1 hour from the next paycheck. That’d be 1 hour at $15/hr. — If you do that, your bookkeeping/payroll software should auto-compute a best-guess reformulation of the federal withholding, tax, and FUTA (federal) & state unemployment payments.What you need, though, is something to put in the employee’s file that he or she was notified that this was going on, so that his timesheet doesn’t say he worked 40 hours, and you only paid him for 39 hours — by mistake.Contracts require quid pro quo to be binding; we’re doing more than just having the employee sign an acknowledgment. — Again, if the situation is just over $15, you might not think this is necessary, but this way will work for $15 or $15,000. Protect yourself.—“(Employee’s name) and (Business’s Name) agree that (Employee) received a payroll overpayment in the nature of ___________________________ on (date). (Business) agrees to allow (Employee) to keep the overpayment until the next pay date, when (Business) will make an alteration to that paycheck, to the best of its ability, to correct the situation. (Employee), in exchange for being allowed to keep the overpayment until that date, agrees to allow (Business) to make the alteration to his next paycheck and understands and agrees that it is acceptable that (Business) will do its best to rectify the situation such that the final result puts the financial situations of (Employee) and (Business) back, as close as possible, to what would have occurred if the original (or only) overpayment(s) had not been made. Due to the nature of payroll tax accounting, which (Business) follows but does not control, and/or the manner in which (Business’s) payroll/bookkeeping software operates when computing federal withholding and FICA taxation, which also is out of (Business’s) control, (Employee) understands that minor differences may arise but that they will be immaterial, if present, for the purposes of tax reporting.“After corrective action has been made, by (Business) on (Employee’s) next paycheck, (Business) shall furnish (Employee) with the most current copy of his year-to-date earnings summary and federal withholding and FICA remittances, for his or her review, and if he or she would like to make any changes to his Form W-4, (Business) will provide a copy of that form to be filled out, and upon return of the updated W-4, by (Employee) to (Business), (Business) shall enter any changes found therein, into its payroll/bookkeeping software.”Signed on __ of ____, _____,” →—Have the employee sign and date the contract, and have the payroll clerk or an officer of the company/corporation sign and date it as well, with employee’s printed name, and clerk/officer’s printed name and title, underneath the signatures.This is really just a simple little contract, and you can change the wording around to fit the exact situation. It’s just what I came up with while writing this answer. It should suffice for simple situations.You will have problems when the amount of overpayment (e.g., this is a series of overpayments, not just a single one) is greater than the NET income of the employee for that week.For instance:Gross Pay $600Child Support Garnishment <$100>Fed W/H <$50>FICA Taxes <$50>→ NET PAY $400And, the amount of overpayment is $600.—You can take the $400 this week, though your employee is going to be very pissed off at you, because all of a sudden, he has “ZERO PAY” for the week. It’s legal, but it’s a good way to get your employee to quit.What you CANNOT do is take the $600 in gross pay, and not pay the garnishments, levies, withholdings, taxes, etc.You will have to wait until the next paycheck after this one to recover the rest of the money.Let’s say the employee’s net pay for the first week after the overpayment was discovered is $400, and the amount of accrued overpayments is $600. You might consider setting your contract up such that $200 is taken out each week until the $600 is repaid; spread the deductions out over some mutually agreed-upon number of weeks (MINIMUM: THREE).The employee knows that he got money he didn’t deserve, but it wasn’t his fault. That is arguable, of course, and the law in Texas says you can deduct $400 this week and $200 next week, but that’ll mean the guy gets $0 this week.Is he going to come back? → You really should HOPE SO, because if he doesn’t come back, you’ll never recover the unrecoverable amount (in this case, another $200).Compassion is necessary. — Of course, if this is the employee’s final paycheck, you would take all $400 and send the guy a bill for the other $200. Good luck collecting that! — This is a civil matter; unless the laws of your land are very different from mine, the mistake is construed to be on-you, and it’s not theft (by the employee). Your recourses to recover, in that situation, would be to call and beg repetitively; send it to a collection agency; or, sue the now-ex-employee.None of those are great choices, and they get worse from left to right.Finally, what if you discover an overpayment, made on payday 12/31/00, on 1/1/01?The employee(s), in this scenario, received an overpayment in the past FISCAL YEAR. Now, you are considering undoing the mistake in the current fiscal year. — Remember what I said about matching?I’m not going to belabor the subject. — Just realize that this is a trickier situation, and if you don’t know what to do, then you should be talking to a CPA or other tax professional.