Question
This week my office manager of 5 years came to me in tears because she realized that she has been making an error on overtime pay to my employees since I bought the business 5 years ago.
We have 13 employees. She ended up doubling some hours to employees when they had overtime and the pay period ended somewhere in the middle of the week. We pay on the 5th and 20th. This problem had the greatest affect on my two installers, because they get the most overtime. I had her research for the last two years and we discovered that each installer received about $2000 each year more than they truly had worked. Taxes and all that fun stuff were done correctly for the amount of money they were paid, so that is not a problem.
I have not had her waste any more time researching other years because I feel it will not serve any useful purpose. (Other than depress me more!) But I do believe we are talking $15,000 to $20,000 over the past 5 years. I have no intention of trying to collect any of the overpayment back from the employees... I just don't feel that would be right.
What do I do with my office manager? I know there are no perfect employees. She is generally competent and thorough. She does payables, receivables also. I don't really want to lose her and yet I feel there should be some consequence for her mistake. Maybe the mistake is so costly that it is wrong to keep her on.
I also realize that "the buck stops here" (no pun intended). I should not have trusted that the time cards were being done correctly all the time. I should have spot checked them.
The other thing that really bugs me is the fact that neither one of these installers ever said or noticed anything. For example, in my research, I found one pay period where one installer received $400.00 more than he earned. He had 160 hours of regular and overtime combined! Come on now - that is 16 hours a day for 2 weeks straight. We have never come close to that! One would think that a guy would notice that. The ironic part is... if we had shorted them 20 hours, you can bet they would be at her desk Monday morning wanting to know what happened.
One installer has been with us for 5 years, the other for 2-1/2 and I have never felt I should worry about their integrity. I believe they are both honest people. I am going to have a meeting with them this coming week and explain what has happened. I am really unsure how they will take it. I don't want them to think I am blaming them. They may think to themselves "Great, now we are getting a $2000 cut in pay!" It's our mistake, but I feel like I want to ask them "didn't you ever think something was not quite right? 160 hours!" I am struggling with how to handle this the best.
We are currently researching professional payroll companies to handle our payroll from now on.
Forum Responses
(Business and Management Forum)
From contributor G:
Did you still make a profit in the past with the over payments? If so, just stop overpaying everyone, do a regular audit of pay and put the extra money you will now have to something nice like new machinery or boat, etc.
I guess the procedure with the office manager should correspond with why she was hired and what her credentials are. If it is her job to keep all the financial matters of the business, you might consider her position, for if it has taken her five years to spot such an error, how can you be sure that there are not mistakes in other areas?
On the other hand, if this job was dumped on her and she was not fully qualified for the task but cheerfully embraced the assignment to be helpful, I would as the owner consider the mistake my own.
My greatest area of irritation would be with those who received the extra and reported it. I can understand not noticing an extra 20, but 400? This reveals to me an employee base without scruples. I am not advising to fire the works, but I would at least consider the matter! Like you, I would consider the oversight as water passed under the bridge. I would not try to collect the excess payment back.
My employee knows what he is supposed to get, also. If I make a mistake on his check, he lets me know. But I have caught him not being honest with me. He is here for the paycheck, not the love.
As to the installers. I think the conversation should be couched as "I am surprised that you didn't notice the error," but if they do a good job and you still made a profit, you could end up spending a lot more money replacing them if you tee them off. Whatever you do, they are gonna feel like you have cut their revenue, because you have.
As to the administrator. You should congratulate her for bringing the matter to your attention as soon as it came to hers, and discuss with her how the two of you are going to rearrange the workload so that any mistakes like this get spotted sooner and dealt with quicker.
The employees will be a challenge. They, like most people, have expected that money for that long and have increased their spending habits through those years to match the paycheck. Dropping $400 out of a paycheck will have them looking for jobs to meet their expenses. I would assume that they knew, obviously, and any new guy found out that it was a "you're stupid if you say anything" topic at break time.
I would, at a meeting, point out the mistake, state it as a mistake, and here are our options. The employees got free money for that time without speaking up and you are disturbed that no one came forward, but instead of taking that money away, in order for you to keep receiving that extra money, you're going to have to... [increase productivity, bring in some sales (referrals), etc] to match the amount that is over the correct amount. Basically having them work/perform for that extra raise. Still claim disappointment for their not coming forward, but let it go. And the subject is finished and not to be talked about anymore among anyone! Back to better work! Everyone at that meeting made the mistake, including yourself. Move on. If performance around there drops or the topic is discussed again among them, tell them they have to move on.
One on one, commend your office manager for still coming forward knowing it was probably tough to do, but to give you the best she's got here on out. And ask yourself why you never looked at the payroll numbers for five years and never caught that. Then forgive yourself and now go make an extra $15,000 to make up for it, claim it as lesson learned and start smiling again. You can easily make an extra $15k.
I would also take a look at the employees who benefited most from this error without saying anything. I feel confident that my employees would let me know immediately if they were significantly overpaid; if they didn't, I'm not sure they're the kind of coworkers I want around.
If your office manager came to you in tears, owned up to the mistake, took responsibility for the error without blaming anyone else, then she's already punished herself more than enough. If you want to be a good leader as well as a good manager, let her know that as the shock faded, you realized that you really appreciated her honesty, and your trust in her just went up. Deal with the training/competence issue if there is one. But unless there is something you're not describing, if you respond in this fashion, you'll have a hardworking, focused and loyal office manager for a very long time.
With regard to the two installers, let them know without any judgmental message at all that there was a payroll processing error that overpaid overtime for the past five years. If they have questions, have your office manager explain the processing error to them. And then drop the issue completely. Why? Because we all know that the most severe challenge facing businesses of all sizes is finding and retaining competent employees. If you've had these guys for five years, you're already doing more than just something right.
I would suggest using your accountant at least once a year to take a look at your processes and provide a set of reviewed financials. Your accountant/tax planner is a business partner who can review this sort of process for you easily and in very little time. Worth every dime.
You've got the opportunity to demonstrate that you're a great guy to work for. There's no way to recoup the cash lost over the past five years, but you can turn it into an investment in continuing to build a great place to work.
At the last company I worked (in HR), if there was no doubt that the employee knew they were overpaid, the employee was required to pay back the company. The concept was that if the company made an error in underpaying, then the employee would be made whole and the same holds true the other way. A Memo of Understanding describing the situation was signed by the employee indicating that he/she agreed that a certain dollar amount would be deducted from the paycheck each pay period. After investigating each case, the majority of cases resulted in a finding that the employee knew of or there was extreme doubt that they didn't know of the overpayment.
We've never had this big of an overpayment (5 years) so this one is even trickier. This is obviously a learning for the office manager. Training is in order and an audit system should be set up to prevent this from happening in the future. I would also put a note in her personnel file or an "issues" file describing this situation and the corrective action to prevent it from happening in the future, plus any consequences in the event it does occur in the future. Documentation of the details/facts will be very helpful in the future in the event it has to come up in court for any reason... sometimes it's hard to remember everything.
I would also talk with the other employees one-on-one. Each conversation should be held back-to-back so there's no time for the first employee you talk with to get back to the other employees and get a story together. Start the conversation with a broad statement, then add details as you should... you'll know when... it's a feel thing. Tell them, without much detail, that you noticed an issue with payroll processing, then ask them if they noticed anything. Pay attention to their non-verbals... you may learn a lot if they start to squirm. Then add some more detail. Be careful not to accuse them of doing wrong. You're just trying to gather the facts through a neutral investigation.
Sometimes, employees will spill everything. Sometimes, they'll stick strong to their story even if your gut tells you they knew. Other times, it's very clear that they had no clue of the overpayment. Sometimes, not often, you'll get an offer from the employee to reimburse you. You won't know until you talk with each employee individually.
Once you complete the investigation, review all your notes and then make a decision on what to do going forward... require repayment, termination of employment, etc. These are not easy things to deal with, but unfortunately it happens. Developing good processes, training of your employees, and setting the expectation that employees need to bring to your attention any errors in their favor or the company's is necessary.
We are employers. Our men look to us for stability in more ways than one. I don’t care what anyone says – it's all about money. Would be nice if friendships are forged. In 20 years and over 100 employees, I have only forged one. I don’t care about being my men’s friend anymore, as it hurt to much learning it was bad business. I would not discuss this with them and in your position, all you're obligated to do is pay what was initially agreed upon. Great discussion will not change the inevitable outcome.
Now about signing checks. It is the 21st century. We do not issue paper checks for payroll, and there is no signature required. We are on direct deposit over the internet for each of our employees. However, I understand that does not release me from being responsible to make sure the time cards and deposits are done correctly. Trust me, it has been an expensive lesson and one we won't forget.
I guess the bottom line is, we found the problem, we fixed it and now we move on. Thanks so much for your thoughts on this subject.
Comment from contributor L:
Frankly, the thought of firing your bookkeeper should never have crossed your mind, at least not for more than a few seconds of irritation. I do hope you understand just how fortunate you are to have her. All she had to do was keep her mouth shut, and you would never have been the wiser. Count your blessings in her case.
As far as the workers go - I'd say nothing at all. It will serve no purpose, but to cause future friction. If one of them comes to you asking about shorter pay, have them do the correct math. They will see they are now getting what they are due. If they bring up higher pay in the past, it will be at the risk of exposing themselves for knowing they were being overpaid. They probably wouldn't want to put themselves into such a position.
Don't get into specific amounts of pay rate or amounts received with the group. If necessary you can have additional one on one with the installers. Definitely let them know ASAP that the amount they are going to be receiving, starting with the next check, will be reduced, due to the discovered problem. That way they can budget it into their spending habits. Tell them at the beginning of the next pay period so they can work to stretch the paycheck they just received.
It wasn't that much of a change, so it should have minimal impact on a week to week basis. Keep on eye on attitude and performance, because some people won't tolerate a loss of compensation.
I got to the office and the personnel manager asked if I had noticed anything different about my paycheck I told him I hadn't. He then said there had been a mix-up in payroll and I was getting the salary of another employee with the same last name. We had recently had salary reviews, and my boss told me I was going to get a raise of X percent now that I was a permanent employee. I also had my check going on direct deposit to my bank and didn't really pay much attention to amounts (I was a free and easy bachelor). The personnel manager's office staff were around while this conversation was going on, and I remember they were all giving each other knowing nods of the head at my story, but it was all true.
The manager said the money would have to be paid back, and I could either pay it back over a period of time or all at once. I was getting upset that I was under suspicion, and said they should take it all back next paycheck. When the meeting ended, I think the personnel manager and his staff realized I was innocent, but it certainly shook me up.
a) An error was made for 5 years.
b) The bookkeeper was extraordinarily upset by it.
c) The amount of overpayment was obvious in some cases.
d) The employees did not report it.
You have several issues here.
The first is that your installers can not be trusted. Their integrity should be questioned at every turn. Who knows what else is happening but you'd better start looking at your whole operation because if they'd steal here where a paper trail is so obvious, they are likely emptying your pockets elsewhere as well.
The second issues is that while your bookkeeper showed more integrity than your installers it does not overcome her inability to handle the books; 5 years should be enough time even for a person (even those with zero knowledge of accounting) to learn to spot the mistake you said was obvious to anyone.
Your bookkeeper not only doesn't have the basic skills required but she has not exhibited the ability to learn on the job nor the pride of doing a professional job. A simple question to you like, "Does this look right?" may have ended this mistake years ago.
Her integrity, however, should make you consider training her for another job within the company, perhaps one of the installers' jobs? She sounds like the kind of employee you would want to keep when you find her the right job.
The third issue is that you sound as if you have a severe case of growing pains. You haven't yet gotten that your job has shifted from purely hands-on work to that of leader. If you want to stay with the hands-on stuff, maybe it's time for you to consider hiring a professional manager? If you want to move onto leadership and management, get yourself into training classes, discussion groups, hire a coach, etc. Just remember that you manage processes but you lead people. There's a huge difference.
I worked for a company several years ago, where the employees had been paid double the OT rate for almost 2 years. It was a software setup mistake made by rookie bookkeepers. I caught the mistake the very first time I ever processed their payroll. The amounts didn't look right so I double checked by hand calculating them. I found they had applied the OT rate to both the time clock software and the payroll software, which resulted in it doubling up. I didn't blame the staff for having the error; after all, this is a good lesson that will help them later on in their careers. But I did hold them accountable for overstating their qualifications and experience, and mostly for lying about their cross-checking procedures.
I found it most disturbing that not one employee had come forward to state they were overpaid. I don't believe for a minute they didn't know. If they felt they were shorted, they were in the office in an instant. We made every single employee that was overpaid pay back the money. After that, employees learned to report or question any overpayments immediately. They did not want a surprise deduction from any pay they were expecting.
