Uh-oh, what if you fail to take payroll deductions for employee benefits?

Q         We discovered an administrative error that caused us not to take payroll deductions for employee benefits for several individuals in 2020. Do we have the right to take the deductions as a catch-up for the amount that should have been deducted last year in addition to their regular 2021 payroll deductions?

A   The answer is probably yes, but there are some limitations. Corrections for overpayment due to clerical errors are known as recoupments.

State law considerations. First, you should check the laws of the state in which you conduct business because your state may have a law that puts limits on, or expressly prohibits, your ability to correct overpayments via recoupment:

• For example, Virginia allows recoupment without the employee’s consent, while New York and Oregon prohibit it entirely.
• On the other hand, the West Virginia Wage Payment and Collection Act addresses overpayments only to state employees and requires them to give a written authorization to assign their future wages to the state to pay it back.

Also, please note that if a payroll deduction error relates to an employee benefit plan (such as a retirement plan, health plan, flexible spending account plan, etc.), when and how it’s corrected may be governed by the Employee Retirement Income Security Act (ERISA), the Internal Revenue Code, the plan document, and/or contracts with insurance carriers. Experienced benefits counsel can assist you with determining how to correct such an error.