18 April 2021

Lora Murphy ACIPP, CIPP policy and research officer, discusses the causes and what can be done to prevent the incidence of overpayments


Having emanated from a background in operational payroll, I live and breathe the motto of ensuring that payment is made to employees both accurately and on time. This is a mantra that permeates throughout the industry, but payroll professionals recognise that there are some key areas in which payroll departments falter, and it would be plausible to state that overpayments is one of those.

Overpayments are often cited as the bane of the lives of payroll professionals and can, of course, be caused from within the payroll team directly. They often occur because of miscommunication or, indeed, a complete lack of communication from other departments within a business or from employees.

In the first in a series of articles that explore the issue of overpayments, attention here is focused on preventing overpayments from happening in the first instance. Subsequent pieces will centre on the steps payroll departments need to take when reclaiming overpayments, and the raft of considerations to be made prior to making deductions in relation to overpayments.

 

...emphasis is on education, and ensuring that everyone is aware of their responsibilities...

 

Education of the wider business

The CIPP policy team are passionate about payroll professionals educating the wider teams and employees within their businesses as to the importance of communication, and how this will ensure that staff receive the correct pay each period. Payroll deadlines should be circulated frequently, and kept within an area, visible to all staff, to allow them to adhere to the timeframes set by the payroll department.

Employees, and particularly department managers (who are more likely tofbe  responsible for submitting payroll information) should be aware of the consequences of providing incorrect data, and of failing to submit any data at all, within the stipulated timeframes.

It may also be the case that where a manager or someone responsible for submitting employee information to payroll leaves, their successor may not be aware of the processes or rules of providing that data to the payroll department. Again, emphasis is on education, and ensuring that everyone is aware of their responsibilities, business wide.

Similarly, where employees have access to self-service, the importance of inputting information accurately should be emphasised to all staff. When employees provide information to managers, or a notification of a change, accuracy is again important.

Education in these areas will, hopefully, work to eliminate the likelihood of overpayments being made due to internally incorrectly submitted information, which is delivered by individuals outside of the payroll department. This may even serve to demonstrate that payroll teams are not just responsible for ‘pushing a button’ (that old adage) and conveys to wider teams within businesses that payroll is actually a significantly complex and demanding function, vital to the successful operation of any company.

 

Checks within the payroll department

Whilst communication with the rest of the business is important, it is also essential that the payroll department carries out its own checks prior to each payroll run.

The types of check that many businesses favour include exception and variation reports. Reports of this nature allow the payroll department to identify any large fluctuations to the pay of individuals, so that further investigation can be carried out, and a reason for the substantial variation established.

Whilst writing this article, I am acutely aware that payroll professionals are extremely busy individuals, particularly as many of them are still having to grapple with the extension of the coronavirus job retention scheme (CJRS). I do, however, need to include the recommendation that all changes made to payroll are ideally checked by a person other than the individual who made that amendment each pay period. This may, in reality, be a ‘nice to have’ at the given time, but the more checks that can be carried out, the higher the chance of eliminating any overpayments to employees, and running a successful, error-free payroll.

 

Frequent causes of overpayments

It is widely recognised within the payroll profession that there are some scenarios in which overpayments are more likely to occur.

A common cause of overpayments is when employees leave the employment. Unfortunately, the payroll department do not have a crystal ball, so if they are not notified that an employee has left, or is leaving the business mid-pay-period, then the employee will remain on the payroll. Where this employee receives a pre-set amount of pay each pay interval, it is highly likely that this will be paid if no leaver notification has been received. A recommendation from the CIPP would be for businesses to produce a ‘leaver checklist’ to be completed each time an individual is due to leave. In this checklist, there should be a step that involves notifying payroll of the change. Again, education would be fundamental in the success of this process, as staff would need to be aware of the existence of the checklist, and where they can locate it.

The CIPP Advisory team receives multiple enquiries from members regarding overpayments when an employee has chosen to take a period of parental leave. If, for example, an employee is entitled to statutory maternity pay, or no pay at all via payroll whilst on leave, then if payroll has not been notified of the circumstances there is a strong chance that the end result is an overpayment. Again, robust procedures and processes should be implemented within organisations relating to parental leave, to ensure that the payroll department is notified in sufficient time to account for any changes to pay. The same applies where employees are absent due to illness and are maybe only entitled to statutory sick pay, or no pay at all.

Where employees change their hours there is also a high risk of overpayment should payroll not be advised. This links closely to parental leave, as parents returning to work regularly opt to reduce their hours to spread their time between working and caring for their child/children. If a set amount of pay is given automatically each pay period, overpayment could potentially occur if the change has not been accounted for within the payroll system. There are actually prescribed periods of notice that employees must provide to employers where they wish to return to work, and amend their hours, so, if these timeframes are adhered to there is no reason why payroll should not be notified in sufficient time for the necessary changes to be made.

...evident that a lack of communication is the fundamental cause of overpayments.

 

Conclusion

A clear pattern is emerging, and it is evident that a lack of communication is the fundamental cause of overpayments. There are steps that payroll departments can take to try and ensure that payments are as accurate as possible, but they have no chance of succeeding and eliminating any overpayments unless they are advised of changes that will impact pay, within appropriate timeframes. Further education needs to be provided within businesses to try and tackle the issue of overpayments, and to dispel the myth that payroll professionals do nothing more than ‘push a button’ each pay period. An enhanced awareness of what the payroll team do may ultimately lead to further appreciation of their role within a business, which, as we have seen on an even bigger scale because of coronavirus, is a key one. 


Featured in the May 2021 issue of Professional in Payroll, Pensions and Reward. Correct at time of publication.