The Internal Revenue Service miscalculated the pay raises of hundreds of employees, according to the Treasury Inspector General for Tax Administration. An audit found that from 2006 to 2015, complexities in the managerial pay system led to more than 600 employees being overpaid to the tune of $4.2 million, while more than 900 were underpaid by a total of $2.7 million.

The IRS does not pay its managers based on the General Schedule, due to the IRS Restructuring and Reform Act of 1998. Instead, it uses its own proprietary Payband system, which is performance-based. When employees become managers, they switch from the General Schedule to Payband.

But the rules can vary depending on what job an employee is moving into. For example, many permanent IRS employees are briefly promoted to management positions during peak tax season to oversee temporary employees. Sometimes, these promotions can last for just a single pay period.

Other times, an employee can be temporarily promoted multiple times before returning to their original position, in what’s known as a stacked promotion.

In addition, the pay raise functions as a percentage of base pay, up to 8 percent for temporary promotions and 10 percent for permanent. This means locality pay has to be removed from the equation before the pay raise is calculated, then reapplied after the fact.

Further complicating matters, TIGTA found that there was no standardized training for pay setting employees; each office was required to develop and conduct its own training regimen. This led different offices to come to different interpretations about specific rules.

Some of the employees who were overpaid wound up responsible for debts of more than $5,000, TIGTA found. Some of those employees, as a direct consequence, wound up turning down offers for management positions, contacting their congressional representatives, delaying retirement and even suffering medical issues.

To fix the issues, TIGTA recommended that the IRS chief human capital officer first address all of the over- and underpayments, and resolve those situations. Second, the IRS CHCO should simplify the pay calculation processes.

The IRS agreed with all the recommendations.

Toward that end, the IRS has already implemented secondary reviews of all pay calculations for employees moving from the General Schedule to Payband. They took that step in 2013, but the process will now prioritize the high risk areas.

It will also review the Payband system itself, and suggest ways to simplify the process, especially in circumstances of stacked or multiple promotions.

Finally, it will develop a standardized training system, including job aids that will target and correct the most common errors made during the pay-setting process.

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