Overpaid an employee? What can you do?

Things in the workplace don’t always go without a hitch. One simple mistake from payroll could mean you have accidentally overpaid an employee. But what can you do to recover the money?

The law allows employers to make deductions from worker’s wages where there has been an overpayment of wages. As soon as you spot the error, you should inform the employee of the overpayment and explain your intention to make a deduction and tell them how much it will be.

If the amount is quite small, you may just deduct it from their next month’s pay. However, if the sum is quite substantial, you should discuss with the employee how the total amount will be repaid to ensure that the employee is not going to run into any financial difficulties. For example, you may agree that the employee will pay X every month for X period of time.

How does this affect employees who are on the National Minimum Wage?

In this situation, an employer can make a deduction even if the deduction leaves the employee receiving less than the National Minimum Wage rate.

What about if the overpayment happened a while ago, but you have only just spotted it? 

It’s in best interests of the employer to spot any mistakes as soon as possible because things get quite complicated if there have been regular overpayments over an extended period of time.

The total amount the employee may owe may be substantially more than they earn in a month, so you can’t simply deduct the entire amount all in one go. You will need to talk to the employee to agree on a repayment plan and ensure the repayments are reasonable for the employee.

The truth is that the longer the delay between the overpayment and you finding out about the mistake, there is an increased likelihood that an employee will argue that they ‘changed their position’ as a result of the overpayment. For example, they may claim that they increased their budget due to their more generous wages and as such they have spent a significant amount of the money. In these cases, it may be unfair to make the worker repay the amount owed. To find out more about this, contact your Employment Law Adviser.

What can employers do if the employee is not working for them anymore?

If an employee has left your organisation, you cannot make a deduction of wages. You will need to get in touch with the employee, explain the situation and try and find a solution together. However, it is not always straightforward – you may not be able to locate the employee easily or they may simple refuse to make the repayments.

In some contracts, the employer may have inserted a provision which states that if there has been an overpayment and they have left the employer, it will be considered a civil debt. However, you will need to weigh up the costs to decide what to do. Is it worth pursing the employee or just taking the loss?

If you cannot come to an agreement with a former employee, you could also think about taking them to a small claims court, where you can make a claim for up to £10,000. You can also consider alternative dispute resolution, such as mediation.

This is a tricky area of law, so we would urge you to seek legal advice at the earliest opportunity.

Director of Legal Services

James Tamm

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We combine the service quality of a law firm with the certainty of fixed-fee services to provide expert, solutions-focused Employment LawHR and Health & Safety support tailored to employers.

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We combine the service quality of a law firm with the certainty of fixed-fee services to provide expert, solutions-focused Employment LawHR and Health & Safety support tailored to employers.

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We combine the service quality of a law firm with the certainty of fixed-fee services to provide expert, solutions-focused Employment LawHR and Health & Safety support tailored to employers.

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We combine the service quality of a law firm with the certainty of fixed-fee services to provide expert, solutions-focused Employment LawHR and Health & Safety support tailored to employers.

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