Salary overpayments

If you make an overpayment of salary, wages or other remuneration to an employee, how you correct this will depend on the reason the employee was overpaid and the year in which the employee repaid the amount.

• Employee did not perform duties
• Clerical or administrative errors

Employee did not perform duties

Employees might receive salaries or wages during a period when they did not perform their duties and later have to repay some or all of it because their circumstances have changed. Examples of when salaries or wages have to be repaid include:

• an employee who is on a leave of absence and receives salary and disability payments for the same period of time;
• an employee who was advanced vacation leave credits, but quit working for you before actually earning the credits; or
• an employee who was paid a signing bonus but did not work for the time agreed to in the employment contract.

Under this policy, your employee should repay you the gross amount of the salary overpayment. You cannot adjust the employee's T4 slip or the payroll records to reduce the total employment income or source deductions by the amount of the repayment. Your employer's share of CPP contributions and EI premiums is not refundable.

You should give the employee a letter confirming the tax year when the overpayment was included in the employee's income as well as the date, the reason, and the amount of repayment you received. The employee may claim a deduction on line 229 his or her personal income tax and benefits return in the year the amount was repaid.

Clerical or administrative errors

We will not consider an amount to be salary, wages, or an advance in the year the employee received it if the employee is overpaid because of an administration or clerical error (mistake). If you discover an administrative or clerical error that led to an overpayment and your employee either repays it or makes arrangements with you to repay it in the same or a different year, adjust the payroll records to exclude the amount as described below.

However, you should include the overpayment on a T4 slip in the following situations:

• The employee says he or she will repay the amount and does not. Include the amount in employment income in the year the employee agrees to repay the amount but does not.
• The employee says he or she will not repay the amount. Include the amount in employment income in the year of the overpayment.
• You forgo your right to the amount. Include the amount in employment income in the year of forgiveness.
• There was knowledge or collusion and the employee does not repay the amount. Include the amount in employment income in the year of the overpayment.

When the employee should repay net salary

If the employee repays you in the same year as the overpayment, the employee may repay you the net amount (gross pay less source deductions) as long as you are able to reduce your next payroll remittance to the CRA by the CPP, EI or income tax remitted in error (including your share of CPP and EI) before your last remittance for the year has been made.

When the employee should repay gross salary

Your employee should repay you the gross amount of the salary overpayment if you did not withhold CPP, EI or income tax deductions when the amount was paid to the employee or you are not able to reduce your next payroll remittance to the CRA for that year. Your employee should also repay you the gross amount if the salary paid in error and the repayment are in a different tax year. In these situations, when you prepare your employee's amended T4 slip, use the CPP contributions, EI premiums, and income tax deductions from their original T4 slip, but reduce the employment income (box 14) by the amount of their salary repayment. You may also have to amend the EI insurable earnings in box 24 and CPP/QPP pensionable earnings in box 26 to agree with the reduced employment income that you will report in box 14.

If you had to report the CPP and EI deductions withheld in error on the employee's T4 slip, you can ask for a refund of the employer's share of CPP contributions or EI premiums that you deducted in error by filling out Form PD24, Application For a Refund of Overdeducted CPP Contributions or EI Premiums. You can request a refund up to four years after the end of the year in which the CPP overpayment occurred, or three years in the case of an EI overpayment.

Date modified:

2015-12-17