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, parental payments and more.
If an employee refuses to pay back the money, there are legal avenues for employers to pursue.
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 then either:
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.
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:
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:
For further advice on how to manage overpayments at work, contact Employsure on 0800 675 700.