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Susan Combs  •  Texas Comptroller of Public Accounts

General Provisions
Overpayments

Background

When a state employee has received an excess payment of compensation, repayment may be necessary. The amount of an overpayment of compensation may be recouped by deducting that amount from future payments of compensation to the employee or the employee’s successor.

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Agency Responsibility

Due process

If an agency determines the employee must repay an overpayment, the agency must go through proper due process. The agency must:

  • Provide the employee with an opportunity to exercise any due process or other constitutional or statutory protection that must be accommodated before a collection action may begin.
  • Determine the deduction would not violate any applicable law or rule of the state of Texas or the United States.

Notice provided by a state agency to a state employee or their successor is considered proper due process if the notice:

  • Is given in a manner reasonably calculated to give actual notice to the employee or successor;
  • States the amount of the overpayment of compensation and the name of the indebted employee;
  • Specifies the date by which the overpayment of compensation must be refunded; and
  • Informs the employee or successor that, unless the overpayment of compensation is refunded on or before the date specified, the overpayment amount may be deducted from any amount of compensation the agency owes the employee or successor.

Employee repayment options

Following proper due process, these options are available for employees to repay an overpayment of compensation to the agency:

  • Employee can repay directly –
    • refund by cash
    • refund by check
  • Employee can have leave reduced –
    • reduction of leave (for overpayment of holiday)
  • Repayment can be made through payroll –
    • a payroll deduction from future payroll payments, or
    • a reduction of future gross by overpayment amount.

Agencies must determine the repayment option with the employee.

Comptroller notification

State agencies must notify the Comptroller’s office of any overpayment of compensation or debt to the state. Agencies report the debt using the procedures in Chapter 5: TINS Online Data-Entry Instructions of the Texas Identification Number System (TINS) Guide.

A state agency’s request to the Comptroller to make a deduction (by submitting a payroll file with the action) will constitute the agency’s certification to the Comptroller that all provisions required for providing notice to the employee, allowing for due process and verifying that no laws were violated, have been met.

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Additional Agency Responsibility

State agency recoupment

A state agency may have a legal obligation to seek the refund of an overpayment of compensation.

State agencies may enter into agreements with an employee or their successors for recoupment of an overpayment through installments.

Effect on gross compensation and other types of deductions

Taking a deduction is not a “docking” of pay or a reduction in the gross compensation paid to a state employee for services provided during the payroll period for which the deduction is made. The deduction is a reduction of current pay for a prior pay period.

Example:

A state agency that overpays compensation to a state employee for services provided during September of one year may deduct the amount of the overpayment from the compensation paid to the employee for services provided during October of that same year.

If the agency is using the payroll deduction authority to collect the overpayment, the agency may not reduce the gross compensation of the employee for services provided during October. Instead, the agency will deduct the amount of the overpayment (or in cases where the deduction must be taken over more than one month to collect the entire overpayment amount) by the agreed upon deduction amount.

The other method for collecting the overpayment through payroll is to adjust compensation or gross pay. If the overpayment is to be collected by adjusting the gross amount, it can be done by adjusting gross pay by the amount (hours x rate) overpaid in the prior period.

Example:

A state agency that overpays compensation to a state employee for services provided during September of one year may adjust the gross amount to be paid for services provided during October of that year. This is done by calculating the amount of overpayment for September (hours x rate) and reducing the gross amount for October.

If an employee payroll deduction was taken from an overpayment of compensation at the time the overpayment occurred, then an adjustment of that deduction must be made in conjunction with the recoupment of that overpayment.

Example:

The amount of federal income taxes and retirement contributions deducted from an overpayment of compensation has to be adjusted when the overpayment is recouped.

Calculating the hourly rate for overpayment of compensation deduction or reduction of gross pay

Use the hourly rate of pay in effect during the payroll period of the overpayment to calculate the deduction. The hourly rate will vary from payroll period to payroll period, depending on the number of standard working hours in each period.

Deduction timing

The deduction may be made:

  • From any payment of compensation
  • More often than once monthly

    Example:

    The deduction could be made from each payment of compensation to a state employee who is paid twice monthly or every other week.

Sufficient salary and wages to support the deduction

If the amount of an employee’s compensation is insufficient to support the deduction after all other deductions with a higher priority have been taken, a portion of the deduction must be taken. This deduction is not an “all-or-nothing” deduction. The amount of the deduction that could not be taken must be deducted in succeeding payroll periods until the full amount is deducted.

Some state employees who agree to refund an overpayment of compensation through deduction but under an installment plan may not have sufficient compensation to pay the deduction. In this case, the amount must be added to the amount of the regularly scheduled installment in the next payroll period. The regularly scheduled installment in the next payroll period is not automatically postponed to the succeeding payroll period.

Deduction documentation and adjustment to payroll accumulators

State agencies must retain certain supporting documentation in their files on the deduction. The documentation must state the following:

  • Amount of deduction made during each payroll period
  • Total amount of overpaid compensation being recouped by the deduction, if compensation is being recouped through installments
  • Type of compensation being recouped through the deduction
  • Payroll periods for which the deduction is made
  • Number of working hours and payroll period for which state employee was overpaid, if an incorrect number of working hours caused the overpayment

Agencies must ensure payroll accumulators, such as agency-paid/employee-paid taxes and limits on benefit replacement pay and deferred compensation, are adjusted as required. The Comptroller’s office may require the agency to make available supporting documentation about the deduction and these adjustments during a post-payment audit, pre-payment audit or at any other time.

Deduction accounting requirements

A state agency that recoups an overpayment through this deduction must reimburse the appropriate account or fund in the State Treasury. This applies to agencies that directly used money in the State Treasury to make this overpayment, or initially used local money controlled by the agency to make an overpayment of compensation and was then reimbursed for that overpayment with money in the State Treasury.

The agency must credit that reimbursement to the comptroller object that corresponds to the type of compensation recouped.

The reimbursement must be credited to the same fiscal year that was charged for the overpayment. If the fiscal year has already closed, the agency must first deposit the reimbursement in a suspense account and then manually adjust the appropriate accounts.

Overpayments for optional holidays

State employees who take a paid day off from work on an optional holiday must work on a state holiday to make up those hours. If the employee becomes ineligible for a paid day off on the state holiday due to termination or leave without pay or is unable to work the state holiday, they are overpaid if they are paid for the state holiday.

Terminations or interagency transfers of state employees

If a state employee terminates employment before the agency has fully recouped an overpayment of compensation to the employee, the agency may deduct the outstanding amount of the overpayment from any lump sum payment of accrued vacation or sick leave by the agency to the employee or the employee’s successor.

The deduction may not continue after the employee transfers to a different state agency. The amount of overpaid compensation that remains outstanding after the transfer may not be recouped through this type of deduction. The agency that overpaid the compensation should consider starting a new collection action or procedure to recoup the remaining amount by alternative means.

Legal advice

State agencies should consult internal legal counsel, the attorney general or other appropriate legal counsel for legal advice on:

  • Notice requirements,
  • Due process or other constitutional or statutory protections that must be accommodated before a collection action may begin, or
  • If this deduction would violate any applicable law or rule of the state of Texas or the United States.

Inquiry requests to the Comptroller’s office

The Comptroller is prohibited from investigating if a state agency provided a state employee or the employee’s successor the opportunity to exercise due process or other constitutional or statutory protections before the agency requested the Comptroller to make the deduction. Therefore, if the Comptroller receives an inquiry from the employee or the successor about this subject, the Comptroller will immediately refer the employee or successor to the agency. As authorized by law, the Comptroller intends to rely on the state agency’s determination that the deduction would not violate any applicable law or rule.

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Definitions

Compensation
Specifically includes base salary or wages, longevity or hazardous duty pay, benefit replacement pay, lump sum payment for the balance of accrued vacation or sick leave, or both, and an emolument provided in lieu of base salary or wages.

The Comptroller believes “compensation” impliedly includes all types of bonuses and performance rewards. The Comptroller also believes workers’ compensation payments do not constitute “compensation” for the purposes of this deduction.
State agency
A board, commission, council, committee, department, office, agency or other governmental entity in the executive, legislative or judicial branch of state government. The term specifically includes:
  • An institution of higher education, other than a public junior or community college, as defined by Texas Education Code Annotated,Section 61.003 (Vernon 2004)
  • The Texas Guaranteed Student Loan Corporation
State employee
An officer or employee of a state agency.
Successor
Defined as:
  • The estate of a deceased state employee
  • The surviving spouse of a deceased state employee
  • The distributees of the estate of a deceased state employee
State Treasury
The Comptroller’s Treasury Operations Division that manages the incoming and outgoing funds for the state of Texas.

Sources

Texas Government Code Annotated, Sections 666.001 – 666.003, 666.005, 666.007 (Vernon 2004); Texas Administrative Code 5.40

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Susan Combs
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.state.tx.us
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