In California:
Hi,
I have been getting overpaid for the past 7 months and have not known it due to direct deposit & automatic withdrawals to various retirement accounts & charitable contributions. I am on a set salary with a guaranteed fixed commission. When I did catch it, I immediately went to my employer to make them aware of it. The total came to about $25,000 of gross income. I told them I would be willing to pay the net income back in one lump sum with the balance (gross) taken out of my commissions for the next 7 months. The company told me that they wanted the full gross amount in full that they had accidentally paid me. The other option was for them to take my entire salary for the next 7 months and for me to just live off of whatever amount I still had in my savings. There is also a possibility that they will fire me over this with the reason being that I did not catch it sooner. I overheard them saying that the ideal would be for me to quit and then come after the money. Are they entitled to the entire amount or is it negotiable? What are my options if they fire me over this?

They are entitled to the full amount that you were overpaid, although no law prohibits negotiation and I will let Patty or DAW discuss the tax implications of gross vs. net.

If you are fired over this your options are to file for unemployment and look for another job. It may be an unfair firing but it would not be an illegal one.

If you would repay the amount within the same year the overpayment occurred, you should be repaying the net, not the gross. If the employer chooses not to accept your proposal and part or all of the repayment occurs in a subsequent year, it gets more tricky.

I still have a problem with an employee not knowing that he has been overpaid to the tune of $25K over 7 months. :rolleyes:

I am one of those people who checks my account if a check bounces. Plus, about 30 percent of my earnings go into contributions to 401K's, IRA's, charity and such. The only reason I caught it was because I suddenly was approved for a housing loan at a much higher rate than I was previously approved for about 7 months ago. I found their mistake and notified them immediately. I offered to pay the full net amount I received this month and pay the balance (gross) out of my commissions starting next month. They didn't like the idea and wanted the full gross amount before the year end. It's still an issue and there has been no resolution yet.

Like Patty said, under the IRS rules, if full repayment occurs this year, it should be done for the net pay amount. Also under the IRS rules, any repayments which occur in 2008 (or later) would have to be done on a gross basis. And it does indeed get a lot more tricky.

If I was your employer, I would want to clean this up this year with a net pay repayment. It gets a lot harder from the employer's side to clean up the mess next year.

Guess you've learned your lesson now to check your direct deposit advice every pay day, right?

Yep. Don't trust the Payroll departments anymore, even with a Fortune 200 Company like the one I work for. I'll be checking every detail of every paycheck to make sure they don't screw up my commissions. After the whole fiasco, they finally calculated the numbers, told me I need to pay back the net (which is about 3/4 of the net amount they originally told me to pay) and that their accounting system would automatically take care of everything else as far as taxes & withholdings go on the gross. At the end of the day, I give back what I have and they actually do what they were hired to do. Problem finally solved (hopefully).:)