Employee overpaid over a number of years

What's the process for addressing an overpayment that spans multiple past years please? (2020 to 2024 if that changes anything). If the employee pays a lump sum, would that be gross or net? Would it just be NI and tax deductions to take into account or would it include deductions like pension too. If it's a payment plan, would previous years' deductions not be taken into account? I assumed the net value would be calculated, with NI and Tax deducted using the rates in the affected years, then the employee pays that net value whether by lump sum or smaller future repayments. Thank you

Hi,

If an employer has overpaid an employee then they must work out the overpayment as net. This is because the employee is not due the tax and NI back, it would be the employer.

The employer would need to amend each years FPS submissions to correct them to what the employee was actually paid once the overpayment is taken into account. This would reduce the tax and NI liabilities.

The pension question would need to be asked of the pension provider as it may depend on the type of pension scheme.

Thank you.

@HMRC Admin 19 Thank you. To clarify, when working out the net value, would they use the tax and NI rates at the time the overpayments occurred, or the current rate?

Hi ,
 

When working out a net overpayment, you will need to work out the net pay the employee should have received at the time of the overpayment (using the correct tax and NI rates) and subtract this from the net pay they actually received in error. Once the employee has agreed to pay the net overpayment back to the employer, then you can amend the previous payroll submissions. You can find guidance on overpayment of wages in the CWG2, section 1.19 here: www.gov.uk/government/publications/cwg2-further-guide-to-paye-and-national-insurance-contributions/2023-to-2024-employer-further-guide-to-paye-and-national-insurance-contributions  . Thank you .