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Published May 11, 2018 (last updated on June 13, 2024) | Adam Wyatt - Copywriter and Content Creator

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Overpayments can occur due to a misunderstanding of an employment agreement, a clerical error, or technical fault in the payroll system. Regardless of the cause, employers must be careful when trying to recover an overpayment and know that success is not always guaranteed. Overpayments can also occur when benefits are overpaid such as holiday pay, annual leave cash up, parental payments and more.

If an employee refuses to pay back the money, there are legal avenues for employers to pursue.

How To Recover Overpayments

Getting money back from an employee who has already been paid can be difficult. If an employer makes aggressive demands, the employee may respond in anger or feel like they are being forced into giving the money back – neither of these outcomes are desirable.

To recover an overpayment, employers must first tell the employee about the overpayment and that they intend to retrieve the money. Employers can either:

  • gain written consent from the employee then make the deduction or

  • try to obtain approval through a court order or the Employment Relations Authority if the employee is refusing to pay the money back.

Approval From The Employment Relations Authority

Getting approval from the court or Employment Relations Authority can be a difficult task. But there is a chance of success if the employer can show where the mistake was made and prove it was not reasonably practicable to avoid the overpayment.

If an employer has overpaid an employee, the best way to recover the funds is to offer a flexible repayment plan. This can be done as quarterly or fortnightly instalments to minimise the financial hardship to the employee. However, all overpayments must be recovered no later than two months after notice has been given to the employee, so it is important to consider this timeframe when creating the repayment plan.

Overpayments Legislation

Under the Wages Protection Act 1983, there are limits to when an employer can recover overpayments. Under this Act, employers can only deduct pay from an employee if:

  • the employee agrees in writing to pay back the money. This means the employee must sign the employment agreement AND agree to each individual request for a pay deduction or

  • the request is made by a court order or the Employment Relations Authority

What To Include In An Overpayment Policy

An overpayment policy can help reduce the risk of conflict, misunderstandings and the cost of going to court. When an employee is overpaid at work, they should know to notify the relevant team member immediately and co-operate with them to reach a successful outcome.

A clear overpayment policy should be outlined in the Employee Handbook and should contain the following information:

  • the circumstances where an overpayment can be recovered

  • how to notify management about an overpayment

  • who is responsible for managing overpayments

  • the type of re-payment options available to staff

  • how to recover money owed from employees who leave the company

For further advice on how to manage overpayments at work, contact Peninsula on 0800 568 012.

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