IRS overpaid and underpaid millions to employees

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The Internal Revenue Service overpaid more than 600 employees approximately $4.2 million and underpaid over 900 employees an estimated $2.7 million because of incorrect calculations of manager salaries, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, blamed the problem on complex pay-setting rules. TIGTA pointed out the pay system for IRS managers differs from the pay system for nonmanagerial employees. That means errors in calculating pay when moving between the two systems can lead to improper overpayments or underpayments, resulting in an inefficient use of IRS resources to fix the mistakes.

TIGTA examined a statistical sample of employees who received salary increases of over 10 percent for promotions into management positions between fiscal years 2006 and 2015, and estimated 31 percent of the sampled employees weren’t paid correctly.

The errors happened for different reasons. Some of them stemmed from the complexities of setting pay when employees move between pay systems for managerial and nonmanagerial employees. The procedures for deciding how much they should be paid require the IRS to apply complex and oftentimes confusing rules that can vary according to the management position the employee will be occupying, along with other factors. The agency has tried to train employees on the proper procedures to use, but the individual offices responsible for setting pay didn’t always get the same training.

On top of that, the seasonal nature of some of the IRS’s work only adds to the complexity involved in setting pay because the IRS often promotes some of its permanent employees to temporary management positions. Complicating matters even further, some employees move back and forth between a temporary management position and a permanent position within a short period of time.

Salary errors can have a big impact on IRS employees, the report pointed out. Errors in setting pay may be discovered years after they occurred, but employees are still required to reimburse the IRS for the amount of the overpayment. In addition, the IRS is also required to add interest that is due to employees for any underpayment. TIGTA interviewed all the current IRS employees who had debt of more than $5,000 due to salary overpayments when they were promoted to management positions. They told TIGTA they were unaware of any overpayment until they were notified by the IRS and couldn’t understand how the pay calculations were made. Some employees expressed frustration with the pay issues they were facing. Several of them said they had needed to delay their retirement or experienced medical issues, while others had contacted their congressional representative to complain about the problem, or had to turn down management offers as a result.

The IRS told TIGTA it has taken action to make the pay calculations more accurate in the future. For example, the IRS has added a second level of quality review to the process and formed a team to review the pay actions associated with the nearly 1,000 current IRS employees who were potentially overpaid.

TIGTA recommended the IRS’s human capital office address the salary overpayments and underpayments identified in the report and consider simplifying the pay calculation processes in those problem areas.

In response to the report, the IRS agreed with both recommendations and said it would take action to fix the problems.

IRS human capital officer Daniel T. Riordan pointed out the IRS has already made some fixes. “We have taken numerous actions to reduce pay errors,” he wrote in response to the findings. “We initiated an IR pay setting risk analysis and subsequently created an IR Pay Review team chartered to conduct detailed reviews of 953 high-risk accounts. The team began operations on March 7, 2016. Additionally, we developed and delivered an eight-module pay training to HR staff in 2016 and established a second level of quality review.”

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