Salary sacrifice not applied correctly, now my employer wants overpayment back

[StetsonsAreCool]

Hope someone can help me figure this out... Sorry, it's a bit long.

In 2012 I entered a Salary Sacrifice agreement for Childcare Vouchers with my (then) new employer. Since the first month, the 'salary' part of my pay slip remained unchanged, but 'Childcare Voucher' appeared in the deduction column. I've never thought much about it, just thought it was how it was administered there.

Today, the payroll company used by my employer has dropped a bombshell on the Finance Director to say that due to an error on their part, the employees that receive childcare vouchers have been overpaid. Apparently the error only applies as far back as April 2014. But the structure of my pay slips hasn't changed - apart from tax code changes and pay rise adjustments.

A quick go on Mr Anchovy shows me that, because they've administered the voucher as a deduction after tax rather than a reduction in my net salary, I have indeed been overpaid. It works out at about £150 a month by my calculations.

The payroll company wanted to recoup the overpayment in one go in September (bye bye £800, more than half of my gross monthly salary). The FD said she wasn't happy with taking the overpayment back in one go and that they'd split it over 12 monthly installments.

Problem is, I'm going on Maternity Leave in December for 9 months. I don't think they can deduct the overpayments from SMP (no additional company maternity pay) can they? So when the hell am I supposed to pay this back?

It's completely the payroll company's fault, and I'm feeling pretty resentful at me being the one to have to stump up the cash to fix it - even though logically I know it's not my cash because it was paid in error, it's still annoying because they shouldn't have got it wrong in the first place!

Has anyone got any advice about the technicalities of repaying overpaid salary? I'd like to go back tomorrow armed with a bit more information, as although I'll be talking directly to the payroll company tomorrow I don't really trust them to get their facts right now if they've already got it so wrong...

There's only no impact of the voucher scheme because the value if the voucher has been added onto your gross pay in error. Your gross pay should be £243 less, so in effect, your current gross pay is £486 too high. Some of that is offset by the deduction of £243 and the extra tax/NI. It's a complete mess.

I certainly wouldn't do anything without a clear written account of the adjustments to each of the fields in your payslip that should have been, how they'll adjust your records for taxation, etc.

Elmer, yes, but I also had a pay review in March which came into effect in April's pay along with the new tax code so it was easy to miss.

If I opted out of the voucher scheme completely, my net pay would be the same but I'd then have to find £243 to pay childcare with so I'd be worse off overall. So it's beneficial to stay in it, but working out how beneficial is breaking my brain now

I think the problem with my company is that by outsourcing pay roll, and delegating the calculations, they've left themselves ignorant of the actual figures. Everything matches, all the sums work, so they sign it off every month. When in fact, there's an error much higher up that they've got absolutely no clue to even think about, let alone try and communicate it with the staff!

Poocatcher - it will make things even tighter returning from ML, what with an extra child to pay childcare for but I think that's what I'm going to have to do. Providing I do actually owe them money of course. If it turns out they in fact owe me money then that's another thing

I've just typed up the figures from my previous post into a spreadsheet to send to the FD tomorrow so I'm prepared for the conference call with the other affected staff and the payroll company. What a mess.

Is this a big company? Are you the only one affected? As lougle says this is a total mess.

Very very roughly... As a basic rate taxpayer I would expect your net salary to have gone down by about £195 from before you received the vouchers, but you to have received in its place the £243 of vouchers.

It should be gross £1900 - £243 = £1657
then minus your other deductions

Instead you're getting £1900 + £243 = £2143
then minus £243 = £1900
then minus other deductions

The voucher isn't something they should pay to you, it's not in addition to your pay. That's where the overpayment is.

It's quite a small company - 30 staff. 4 people affected, although I think the rest take smaller vouchers.

It is a completeandtotalmess.

Lougle, that does make a bit of sense. They're working out my tax/NI based on gross pay, then adding the voucher, then deducting from the total, rather than deducting from the taxable pay.

I think the technical term is fuckup?

Hollie, I also get a company pension. That shows on my payslip, but isn't included in any taxable or non-taxable pay. So the Childcare Voucher should be a bit like that? In that they might list it on my payslip to confirm it's been paid, but it shouldn't be included in any calculations of total or net pay?

Not necessarily. Salary sacrifice means you agree to give up part of your salary and in its place receive a benefit. So my payslip reads something like... Base pay £1500
Less: childcare vouchers (£243)
Gross pay: £1257

And then all the calcs run from that. It would be fine on the other hand to just reduce your gross pay and not mention the vouchers. But most employers prefer to leave the reference to base pay (or the like) as that is what eg redundancy pay is based on.

So in my previous post with figures, it's the third scenario that's actually correct?

£1687 minus deductions = net pay of £1337.

I've been paid £1482, so I have in fact been overpaid by £150 per month?

Then the £243 goes into my voucher pot completely separately and I pay for childcare out of that?

What a mess. This goes back to December 2012. I'm going to have a huge backlog to clear

If you assume they have worked out the calculation properly then the question is really when are you going to pay it back? What about paying it back over Sept/Oct/Nov/(Dec) so smaller monthly payments than if you were to pay it all at once in September but at least it's all paid off before you go on maternity pay. Definitely keep receiving childcare vouchers while on maternity pay, particularly if you only get SMP, it's an extra £243 per month!

Them making this mistake doesn't surprise me, I've had mistakes made on my salary several times since payroll started being outsourced, including getting childcare vouchers in addition to my normal salary (noticed straight away thankfully) so I feel you pain. My company (very famous international chemical company) always asks how you'd like to repay overpayments, but is thankfully pretty quick about making up under payments.

If I pay it all back before ML, I won't be able to save any money to help me through ML, so I'll be going back to work after 6 weeks

Sorry yes I think so. Although didn't you say the error only goes back to April 2014?

Are the company doing a full audit into payslips since the payroll company took over to ensure there aren't any more errors?

It should show as a deduction off your gross pay. Then you will have tax and national insurance and student loan taken off after that. So you pay a bit less tax because the gross figure has been reduced by your 243 voucher.

And I would certainly ask if you can defer any repayments until after you return from mat leave. Their worry of course may be that you will never return. But it's worth a shot.

I've just dug out my pay slips from earlier this year. In March, the salary line shows the salary sacrifice amount. In April, the salary line jumps by over £300. I didn't notice before - like I said, salary review and tax code change, I didn't think to sit there with a calculator to make sure they'd got it right. Bollocks.

So it used to be

(Salary minus sacrifice) plus (Voucher) = total pay
(PAYE/NI/Voucher/Pension/St. Loan) = total deductions.

Total pay £1300.

My new total pay should only have gone up £40 or so.

But that would surely mean I've overpaid tax, NI, pension (by a few quid) and Student Loan.

Would I be due a tax rebate do you think?

My questions for tomorrow are:

What happens to the extra tax and NI I've paid this year?
Will they let me defer repayment to next September?
Are they going to rub salt in the wound and recalculate (i.e. reduce) my SMP?

Re the SMP, my understanding is it it's calculated on what I was actually paid in the qualifying period (including any overtime/bonuses), and not what I should have been paid. Do you think they'll be able to recalculate now, given that the qualifying period end date was 2 weeks ago?

Sorry, another question... If they show my salary amount as minus the voucher (so £1687 instead of £1930), should there still be £243 showing in the deductions column?

You seem to be completely not to blame here.
Your employer is paying (PAYING! ) someone to undertake their payroll - you would therefore assume they would know how to deal with payroll related matters? THEY MADE THE MISTAKE!!

Why isn't your employer looking for them to pay the overpayment back as it's their error not yours? Have you actually said this?

There used to be a PAYE and NI calculator on the HMRC website.
I've got a PAYE calculator but am off to work but can have a look later at your figure if no one else is able

So it looks like your march pay slip is showing the correct figures, is that right?

That's very good news.

You know how once you're on smp only, vouchers cannot be deducted? And assuming you will not be using the childcare during your maternity leave, and that your company doesn't give occupational maternity pay (which it can be deducted from), then whilst you're on maternity leave you will be accruing £243 a month in free vouchers.

This will essentially give you a cushion of free childcare saved up for when you go back to work. Would this help cushion the cost?

Deductions can be made from smp as long as you have agreed to them in writing. Payroll may well agree to a token amount being deducted whilst you are off, and a bigger amount once you are back. If you don't agree to them deducting from your smp then they can't. But they could come after you personally to repay the money owed.

I would give them a call, explain the situation, explain that you will suffer severe financial hardship by repaying this, and ask about a more manageable repayment plan that takes into account your maternity leave.

You could always agree to the proposed plan, but with a gap in it for your maternity leave.

Usually payroll are willing to negotiate. Yes you owe the money, but it shouldn't cause you harm. Repayments should be reasonable

Don't let them trick you into cancelling your vouchers during smp! And make sure they know the legislation.

Good luck. This shouldn't stop you enjoying your maternity leave :)

Stetsons, it depends how your payslip is set up.

If it shows salary minus voucher as your taxable, and the voucher is shown as deductions, but not taken off your total twice, then that would be correct. The deductions are just there to tell you what has been taken off.

If it's being taken off your salary twice, then that's a problem, but it doesn't seem to be.

Stetsons, I don't think this is helped by the term 'voucher'. You shouldn't actually be given money (a voucher). You get a deduction from your pre-tax salary. Voucher applies to what the childcare provider is given.

Thanks everyone. Yes, I agree it's really confusing, and the terminology doesn't help. I'm going to spend an hour at work this morning just doing every possible calculation I can think of. The figures looked right in March but there was still a deduction on the right hand side. Will check if that's actually been deducted, and where from.

My shit hot tax advisor friend is also on the case for me so I've got another pair of eyes looking at the physical pay slip. Feels weird opening up my payslip to a close friend, but c'est la vie.

Will let you know how today goes, I may be working myself up over what could end up being an easy fix.

Re voucher and SMP, I'm totally counting on that buffer when I go back to work, and they seem to be on the ball with that. They've just made a massive cock up on the salaries. I think I'll innocently suggest that the payroll co rectify the error as it wasn't my fault, thanks for that suggestion

Thanks everyone so far!

Stetsons, you can try, but ultimately, you were paid money you weren't owed in error, and you owe it back.

But don't start thinking about going back to work early because of this. That would be a real shame.

I hope you get a decent plan drawn up.

I would question whether your pension deductions should be salary sacrifice too (some are, some aren't) just to double check all deductions are as they should be.

The fact that you're being charged less than the £243 in repayments, sounds like they're taking into account and rectifying the overpayment in tax and NI (and refunding it by reducing your repayment), but again ask for a breakdown of everything and check it's right.

Wow. Unexpected turn of events today.

I spent the first couple of hours of the day either in the Finance Director's office or on the phone to Useless Payroll Company.

UPC couldn't give me a good enough explanation as to why their system looked like my voucher had been deducted twice - I ended up more confused than when I started. When I asked about the impact on SMP, they said that was going to be recalculated, then said that my CV would stop while I was off.

As you can imagine, I forcefully questioned that assertion. Dug out all the paperwork from my salary sacrifice and various links that clearly stated the opposite and went fully armed to Lovely Financial Director. Who, as it turns out, had spent the last half hour on the phone to HMRC, and was even more unimpressed with UPC than she had been before.

Upshot is, LFD has arranged for the entire company maternity policy to be reviewed. I will now receive a significant and very generous company maternity pay in addition to SMP, from which my childcare voucher, personal pension and repayments will be deducted, while still leaving me vastly better off than on SMP + CV alone.

The full schedule of repayments is still to be confirmed, and I've asked for a full breakdown in exactly how my pay is calculated so I can compare it against the calculations my amazing friend has done for me, which helped me get my head around it all.

I feel so much better about the next 12 months now. The weight of more than just this has been lifted right off my shoulders.