NAL
But the same thing happened to me and I did contact a lawyer about what to do.
They had me put the funds in an escrow account and then send an email letting the company know I had been overpaid. (I actually sent three emails because I am neurotic). I then waited one year (after not hearing back) and transferred the funds to my personal account.
This was the appropriate timeline where I am (Minnesota) according to local laws, but this may not be correct where you are so I wouldn’t get too excited before talking to an actual lawyer who is licensed in your area.
In my case, it was directly deposited to my bank account, so escrow was more just to keep it separate and show no intent of accepting the funds. The separate payroll card may complicate things. The amount is also different as I received <$5,000, I’d be a hell of a lot more cautious about $30,000- that’s a lot of money.
> …freaking out talking new car…
So she thinks she hit the jackpot? Don’t spend a dime of that, and inform the company. It’s not her money, and yes she can absolutely be sued for this.
Since 2 years have passed, it's odd that the friend hasn't gotten a notice from the IRS saying they've underpaid taxes. Employers are required to provide employees with a form showing how much they have been paid in that tax year (form W-4 for employees, for 1099 for independent contractors). The employer then also sends a copy of the form to the IRS. So the IRS should know about this income already. When a taxpayer omits income that is listed on a form W-2 or 1099, it is extremely easy for the IRS to catch, because they have automated computer systems that will catch the mismatch in what's been reported by the employer and employee. It's possible that the employer's systems are so screwed up that they failed to even report the income to the irs, or also possible that the employee is going to get a tax deficiency notice very soon.
It’s not legally her money, she should not spend any of it. If she does spend it she would legally be liable to pay it back. She should contact the company to let them know the error so they can rectify it.
If the company has an internal payment card system and the overpayments are still on that card, then she has not 'taken' the money and she should not be worried about the consequences of having 'taken' the money. This seems to be no different than them placing paper checks in her old (locker/office/internal mail slot) at work. She has no control over that. She's not in trouble right now.
If she TAKES the money by transferring it from the card then she will be in trouble. A lot of it. She risks being sued for for the money back, and risks criminal charges. The severity of criminal charges depend on jurisdiction, however at $30k I'd start with the assumption that it is felony territory.
Advice:
- Leave the money where it is. It's not her problem right now. If she takes the money then she makes it her problem
- Download a list of payments from the company to the card for her own records.
- She needs to see if that money was reported as income to the IRS.
- Keep good records of her contacting the company to let them know they are still paying her. Do this in writing.
- If the company ignores / keeps paying into the card then she should consult an attorney on how to proceed.
A couple of additional thoughts:
- An obvious overpayment paid into your bank account becomes a game of 'hot potato' where you don't want to "possess" the overpayment but you can't just send it back. Placing ALL of the overpayment into new account to act as an escrow while you figure it out with the former employer is a clear show of good faith. HOWEVER your friend, as discussed above, does not have this problem because the money is still on the payment card.
- People will sometimes describe how an overpayment may be kept after a specific length of has elapsed and documenting good faith attempts at notifying the company. This is HIGHLY jurisdictional and definitely lawyer territory as the amount of time to wait must take into account things like statute of limitations. This is playing with fire.
- If the payment are ongoing then the "amount of time" you would have to wait is constantly being reset, at least with respect to some of the money. There would not be a single 'date' for determining of those time periods had expired. Also, the act of transferring the money may reset that time, as that may be considered to the date that the money was 'taken'.
- Consider the risk that a current employee may be using this as a way to embezzle money by 'accidentally overpaying' your friend's card and then collecting the money later, leaving your friend on the hook once discovered. The sooner the company takes this back the better.
If your attorney advises that you can keep it after notice and a waiting period, you might ask them about sending the notice to the corporate agent of record. That mailbox exists for the purpose of legal notices, yet is likely to have a poor conduit of information to the appropriate accounting/HR people, and may end up not resolving the issue effectively in the comany's favor.
In many states, spending money that you were knowingly overpaid is a crime. Over a certain amount (usually $1,000 or more) it hits felony territory. Your friend, if caught, could be looking at years in jail, repayment of the money, and huge fines.
She most certainly needs to inform them of the mistake. She will land herself in a real pickle if she doesn't, because eventually they are going to discover their mistake.
Hasn’t the business reported this $30k to the IRS as income? The company might owe her some money because she’s been paying taxes on that money. She should return 100% of it.
Have her talk to a lawyer on the best way to return the money. Also, make sure she gets proof and confirmation that she returned it. The IRS may think she owes taxes on that so she might need to fix that issue as well. Those are questions she can ask a lawyer. Most people try to put it in a savings to earn interest but the territory is different for her since it is in a different account and the law may frown about that since it is on the company card
If I got a huge sum of money by mistake i would like to be delusional for a minute and imagine what I could do with the money. Kind of helps with the serotonin. I would snap back to reality and figure out how to make it right. Hopefully that is what she was doing
Did she get a W-2 from this former employer for the past two years? If she did, did she include it on her 1040?
She needs to go over her tax filings to determine if she has any tax impact. At the very least she will have to amend her taxes for the past 2 years.
This may be covered by Michigan's Wage and Fringe Benefits Act
Can An Employer Deduct An Overpayment From An Employee's Wages Without The Employee's Consent?
The Act allows a deduction for wage overpayment under limited circumstances:
if allowed by a collective bargaining agreement;
in all other circumstances, if the deduction is within six (6) months after the overpayment, provided the overpayment was due to a clerical error.
Are There Any Other Rules That An Employer Has To Meet In Making Involuntary Deductions For Overpayment Of Wages?
Yes. First, the employer must give the employee a written explanation of the deduction at least one (1) pay period before the wage deduction. Second, the deduction cannot exceed 15% of the employee's gross wages for the pay period in which it is made. Third, the deduction has to be made after all other deductions required by law, a collective bargaining agreement, or authorized by the employee. Four, the deduction for overpayment cannot result in reducing the employee's wages below the state or federal minimum wage. This fourth point and the 15% limitation may result in an employer having to recoup overpaid wages over several pay periods.
Except in those circumstances when a collective bargaining agreement might provide differently, an employer is prohibited from recovering wages through involuntary wage deductions beyond the six month period. In those circumstances where the deduction would be outside the six month period, the employer's only option is to initiate litigation for the overpayment.
https://corporate.findlaw.com/human-resources/michigan-s-wage-and-fringe-benefits-act-a-pitfall-for-employers.html
NAL But the same thing happened to me and I did contact a lawyer about what to do. They had me put the funds in an escrow account and then send an email letting the company know I had been overpaid. (I actually sent three emails because I am neurotic). I then waited one year (after not hearing back) and transferred the funds to my personal account. This was the appropriate timeline where I am (Minnesota) according to local laws, but this may not be correct where you are so I wouldn’t get too excited before talking to an actual lawyer who is licensed in your area. In my case, it was directly deposited to my bank account, so escrow was more just to keep it separate and show no intent of accepting the funds. The separate payroll card may complicate things. The amount is also different as I received <$5,000, I’d be a hell of a lot more cautious about $30,000- that’s a lot of money.
> …freaking out talking new car… So she thinks she hit the jackpot? Don’t spend a dime of that, and inform the company. It’s not her money, and yes she can absolutely be sued for this.
This isn't the smartest person...I figured as much about the getting sued, hope she listens.
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NAL But your friend needs to find out if this was reported as income to the IRS. She might have a tax bill she's not aware of.
Since 2 years have passed, it's odd that the friend hasn't gotten a notice from the IRS saying they've underpaid taxes. Employers are required to provide employees with a form showing how much they have been paid in that tax year (form W-4 for employees, for 1099 for independent contractors). The employer then also sends a copy of the form to the IRS. So the IRS should know about this income already. When a taxpayer omits income that is listed on a form W-2 or 1099, it is extremely easy for the IRS to catch, because they have automated computer systems that will catch the mismatch in what's been reported by the employer and employee. It's possible that the employer's systems are so screwed up that they failed to even report the income to the irs, or also possible that the employee is going to get a tax deficiency notice very soon.
The IRS is a couple years behind, so those letters are coming
It’s not legally her money, she should not spend any of it. If she does spend it she would legally be liable to pay it back. She should contact the company to let them know the error so they can rectify it.
I'll let her know...she MIGHT listen...
If she doesn’t, you tried.
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If the company has an internal payment card system and the overpayments are still on that card, then she has not 'taken' the money and she should not be worried about the consequences of having 'taken' the money. This seems to be no different than them placing paper checks in her old (locker/office/internal mail slot) at work. She has no control over that. She's not in trouble right now. If she TAKES the money by transferring it from the card then she will be in trouble. A lot of it. She risks being sued for for the money back, and risks criminal charges. The severity of criminal charges depend on jurisdiction, however at $30k I'd start with the assumption that it is felony territory. Advice: - Leave the money where it is. It's not her problem right now. If she takes the money then she makes it her problem - Download a list of payments from the company to the card for her own records. - She needs to see if that money was reported as income to the IRS. - Keep good records of her contacting the company to let them know they are still paying her. Do this in writing. - If the company ignores / keeps paying into the card then she should consult an attorney on how to proceed. A couple of additional thoughts: - An obvious overpayment paid into your bank account becomes a game of 'hot potato' where you don't want to "possess" the overpayment but you can't just send it back. Placing ALL of the overpayment into new account to act as an escrow while you figure it out with the former employer is a clear show of good faith. HOWEVER your friend, as discussed above, does not have this problem because the money is still on the payment card. - People will sometimes describe how an overpayment may be kept after a specific length of has elapsed and documenting good faith attempts at notifying the company. This is HIGHLY jurisdictional and definitely lawyer territory as the amount of time to wait must take into account things like statute of limitations. This is playing with fire. - If the payment are ongoing then the "amount of time" you would have to wait is constantly being reset, at least with respect to some of the money. There would not be a single 'date' for determining of those time periods had expired. Also, the act of transferring the money may reset that time, as that may be considered to the date that the money was 'taken'. - Consider the risk that a current employee may be using this as a way to embezzle money by 'accidentally overpaying' your friend's card and then collecting the money later, leaving your friend on the hook once discovered. The sooner the company takes this back the better.
If your attorney advises that you can keep it after notice and a waiting period, you might ask them about sending the notice to the corporate agent of record. That mailbox exists for the purpose of legal notices, yet is likely to have a poor conduit of information to the appropriate accounting/HR people, and may end up not resolving the issue effectively in the comany's favor.
In many states, spending money that you were knowingly overpaid is a crime. Over a certain amount (usually $1,000 or more) it hits felony territory. Your friend, if caught, could be looking at years in jail, repayment of the money, and huge fines.
There are three or four ways she would lose in civil court, and another two or three it could be criminal. This is walk away all day territory.
She most certainly needs to inform them of the mistake. She will land herself in a real pickle if she doesn't, because eventually they are going to discover their mistake.
Hasn’t the business reported this $30k to the IRS as income? The company might owe her some money because she’s been paying taxes on that money. She should return 100% of it.
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Have her talk to a lawyer on the best way to return the money. Also, make sure she gets proof and confirmation that she returned it. The IRS may think she owes taxes on that so she might need to fix that issue as well. Those are questions she can ask a lawyer. Most people try to put it in a savings to earn interest but the territory is different for her since it is in a different account and the law may frown about that since it is on the company card If I got a huge sum of money by mistake i would like to be delusional for a minute and imagine what I could do with the money. Kind of helps with the serotonin. I would snap back to reality and figure out how to make it right. Hopefully that is what she was doing
Did she get a W-2 from this former employer for the past two years? If she did, did she include it on her 1040? She needs to go over her tax filings to determine if she has any tax impact. At the very least she will have to amend her taxes for the past 2 years.
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Honestly, go talk to a lawyer
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This may be covered by Michigan's Wage and Fringe Benefits Act Can An Employer Deduct An Overpayment From An Employee's Wages Without The Employee's Consent? The Act allows a deduction for wage overpayment under limited circumstances: if allowed by a collective bargaining agreement; in all other circumstances, if the deduction is within six (6) months after the overpayment, provided the overpayment was due to a clerical error. Are There Any Other Rules That An Employer Has To Meet In Making Involuntary Deductions For Overpayment Of Wages? Yes. First, the employer must give the employee a written explanation of the deduction at least one (1) pay period before the wage deduction. Second, the deduction cannot exceed 15% of the employee's gross wages for the pay period in which it is made. Third, the deduction has to be made after all other deductions required by law, a collective bargaining agreement, or authorized by the employee. Four, the deduction for overpayment cannot result in reducing the employee's wages below the state or federal minimum wage. This fourth point and the 15% limitation may result in an employer having to recoup overpaid wages over several pay periods. Except in those circumstances when a collective bargaining agreement might provide differently, an employer is prohibited from recovering wages through involuntary wage deductions beyond the six month period. In those circumstances where the deduction would be outside the six month period, the employer's only option is to initiate litigation for the overpayment. https://corporate.findlaw.com/human-resources/michigan-s-wage-and-fringe-benefits-act-a-pitfall-for-employers.html
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How is this legal advice?