If a business customer inadvertenly sends an ACH payroll credit to their employee and then notices the error and initiates an ACH Reversal and the payee has used all the funds from erroneous ACH Credit, who's responsible for recovery of the ACH Reversal. The Originator or the Bank.

I assume the Bank would treat it as any other NSF, or does the Originator need to return the portion of the ACH reversal amount to the Bank that would cover the overdraft?

The RDFI has the right to reject a reversal as NSF if the funds are no longer in the account. The ODFI would charge the return back to the originator's account the same as it would any other ACH returrn. This is now between the business customer and their employee.