A casual employee was mistakenly paid for a shift that wasn't worked ~$500. I processed the correction in Xero and filed it through STP. I then sent them the payslip showing the correction in wages. We wrote to the person explaining the overpayment and requested it be repaid, and gave him some options. An invoice was then sent for the amount owing, with again some options offered and an opportunity to discuss it. Aside from not being able to lawfully deduct monies from wages without an employees express permission, they have ceased all contact with us and will not respond to phone calls, emails or letters. This person has a full-time position elsewhere and was doing additional work for us in his off-time.
As a result our report to the ATO will show a deduction against that employee's earnings, but as they have not repaid it they have actually received more income that will be reported. Therefore the Payment Summary will ultimately be incorrect.
Do I reverse the overpayment of wages given the funds were never repaid?