ation. However, an employer may discuss an arrangement around a repayment with the employee. Here are some ways for employers to correct an overpayment. First, find out if your employee is legally required to pay back the money, which will not be the case unless it has been outlined in their contract or an industry award. Generally, if the employee has left the company, they aren’t obliged to pay an employer back for overpayments made in the past. Before an overpayment can be corrected there needs to be a written agreement that is signed by both the employee and the employer. The agreement needs to clearly outline the method (bank transfer or cheque), the frequency (weekly or monthly) and the amount that need to be paid back by the employee to the employer in the case of an overpayment. In this case, if an employee does not cooperate with a repayment request, the employer can take legal action or employ debt collectors. Getting straight with the ATO If an overpayment has occurred in the previous financial year, the employer should give the employee an amended payment summary. The payment summary should detail the amounts received in the relevant income year. The employer doesn’t need to adjust the amount of tax withheld in the amended payment summary. The Australian Taxation Office will see that the employee has paid too much tax when the employee lodges their tax return and will refund them accordingly. If an overpayment occurred in the current financial year, a repayment should be the net amount of the overpayment. An employer will need to adjust the pay-as-you-go (PAYG) amount to be remitted to the ATO and does not need to include the details of the overpayment on the employee’s payment summary. The need to amend PAYG When the overpayment is identified in the same financial year then only the net pay needs to be recouped from the employee. The employer can adjust the PAYG withheld payments to the ATO until the submission of its annual report. Your employee will not require an amended payment summary as the issue has been resolved within the same financial year and you as the employer have not sent the ATO the additional PAYG withholding tax, so neither you nor the employee need to recoup money from the ATO. However, once the end of financial year has passed, payment summaries have usually been issued and the PAYG has already been sent and processed by the ATO. If an overpayment has been made in the previous financial year, the employer will need to recoup the gross overpayment from the employee and then the employee will have to recoup the PAYG from the Tax Office via their tax return. The employee will be issued with an amended payment summary which will show a lower gross amount. The ATO will be able to see that the employee has paid too much tax and will provide them with refund. Get some expert help Employ an external payroll management provider. Employers and business owners can avoid costly overpayment errors by employing external payroll experts to create and implement a payroll system. Having a third-party established provider that can manage payroll-related issues can help streamline processes in companies and allow for fewer errors to occur in the long term. Author: Tracy Angwin is the CEO and founder of Australian Payroll Association and the director of Payroll HQ, a managed payroll service provider.