Canadian HR Reporter

CANADIAN HR REPORTER September 7, 2015 FEATURES 21 Start by learning the key components with Basic Workplace Investigation Techniques & Report Writing Workshop or enhance your skills with one of our Advanced training sessions. • Investigating Complex Cases • Interviewing and Dealing with Difficult Witnesses • Assessing Credibility • Conducting Workplace Assessments • The Essential Human Rights Primer for Workplace Investigators • Understanding and Addressing Bias Basic and Advanced Workplace Investigation Training for HR Professionals from Canada's Leading Workplace Investigation Experts. For more information and for workshop dates call or visit: (416) 847-1814 | RubinThomlinson.com Learn to address inappropriate workplace behaviour before it becomes a legal issue. PAYROLL An employee is overpaid… now what? By Wisam Abdulla W ith $865 billion paid in annual wages and benefits to Canadi- ans, it's only logical that occa- sionally, someone, somewhere, might make a mistake. Payroll errors happen and they're never pleasant. Informing an employ- ee of an overpayment and trying to recoup those funds has to be one of the most uncomfortable experiences. And when it comes time to fill out and file T4s, the headache only grows. Where does an employer even begin? If the fault lies with the worker… Take the example of an employee who takes an advance on his va- cation time and then decides he wants to stay in the Bahamas and open a surf shop. Can his em- ployer get back those two weeks of unearned vacation pay? What about when a marketing director realizes she is not entitled to receive her salary and disability payments simultaneously? Does the employer have any recourse? e Canada Revenue Agency (CRA) refers to instances like these as a failure to perform du- ties. e employer's Canada Pen- sion Plan (CPP) and employment insurance (EI) contributions are non-refundable, so the employee should be asked to repay the gross overpayment amount. Employers must not make changes to payroll records or tax slips — instead, they should give the employee a letter that includes when and why the over- payment was made, as well as what repayment was received. An employee can then deduct that amount on line 229 of his personal tax return. And if the employee is a former one, like the surf shop owner? Write a cordial letter explain- ing the situation. In most cases, ex-employees will be happy to comply but if not, a record of this initial contact will help should an employer take legal action. If the fault is with the employer… Here, things get a little more com- plicated. But mistakes happen, particularly if payroll still involves manual or double data entry. If the error resides with man- agement or payroll, employers may choose to allow the over- payment. In that case, employers should add the amount to the em- ployment income for the year that the debt was forgiven. Employers can also make ar- rangements directly with the employee to have the amount re- paid. e question of "how much" seems like a simple one but, as with most things payroll-related, it depends on the circumstances. If an employee makes the re- payment in the same year the er- ror was made, she will only have to pay the net amount, provided her employer reduces the next CRA payroll remittance to recoup CPP, EI and income tax deductions er- roneously filed. ese corrections must be made before the last re- mittance of the year is submitted. An employee will repay the gross amount if: • the repayment is made in a different tax year than the overpayment • no CPP, EI or income tax deduc- tions were made • the employer cannot reclaim those deductions before the end of the year. Either way, payroll records must be altered and the T4 slip must be fixed and reissued. Relevant legislation When an employee doesn't fully understand the situation or is sim- ply being recalcitrant, it is difficult to know how to respond. In many jurisdictions, employ- ers cannot deduct overpaid wag- es without formal consent from the affected employee. When an employee refuses to pay back the amount owed, the employer should include it in employment income of the year the overpay- ment was made. If an employee agrees to make a repayment but fails to do so, add the overpayment to the employment income for the year the promise was made. But first, employers should know their rights. Rules on re- couping repayment from employ- ees vary by province and between different kinds of compensation. Generally, payroll cannot deduct overpaid vacation pay without having a written and signed policy. It is also considered best prac- tice to get an employee's written permission prior to making a de- duction, since the relevant legisla- tion can and does change. Federal: e employer may de- duct an overpayment from regu- lar wages or vacation pay. British Columbia: The em- ployer may deduct an overpay- ment from regular wages, with written permission. To legally de- duct from vacation pay, the em- ployer must already have a written and signed policy to that effect. Alberta: e employer may de- duct an overpayment from regu- lar wages or vacation pay, with written permission specifying the exact dollar amount. Saskatchewan: e employer may deduct an overpayment from regular wages, so long as the correction is made in the next pay run. To legally deduct from vacation pay, the employer must already have a written and signed policy to that effect. Manitoba: e employer may deduct an overpayment from regular wages without the em- ployee's consent. e correction must be made as soon as possible, otherwise it can be assumed the employer has approved a wage increase. To legally deduct from vacation pay, the employer must already have a written and signed policy to that effect. Ontario: The employer may deduct an overpayment from regular wages. To legally deduct from vacation pay, the employer must already have a written and signed policy to that effect. Quebec: e employer may deduct an overpayment from regular wages, so long as it can prove an overpayment was made. To legally deduct from vacation pay, the employer must already have a written and signed policy to that effect. Newfoundland and Labra- dor: e employer may deduct an overpayment from regular wages or vacation pay. New Brunswick: e employer may deduct an overpayment from regular wages, so long as the cor- rection is made within one year. To deduct from vacation pay, the employer must already have a writ- ten and signed policy to that effect. Nova Scotia: The employer may deduct an overpayment from regular wages, provided this does not drop the employee's earnings below minimum wage. To legally deduct from vacation pay, the em- ployer must already have a written and signed policy to that effect. Prince Edward Island: The employer may deduct an over- payment from regular wages, with written permission. e employ- er may deduct an overpayment of vacation pay without written permission. Northwest Territories/ Nuna- vut: e employer may deduct an overpayment from regular wages, so long as written permission is obtained. To legally deduct from vacation pay, the employer must already have a written and signed policy to that effect. Yukon: e employer may de- duct an overpayment from regu- lar wages or vacation pay, so long as written permission is obtained. Between informing employees and complying with the CRA, overpayments are far from fun. e best method is prevention, so if employers find themselves adjusting T4s over and over, it just might be time to review pay- roll processes. Wisam Abdulla is the Vancouver- based co-founder and COO at Pay- savvy, a human capital management software provider. For more informa- tion, visit www.paysavvy.com. In Alberta, the employer may deduct an overpayment from regular wages or vacation pay, with written permission specifying the exact dollar amount.

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