What Should I do if I Overpay a Worker?

Clare Parkinson

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20 Aug 2018

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Overpaying employees is more common than you might think.

It's a simple enough error that can have some very serious consequences if not addressed properly, especially given the recent media focus on national minimum wage—and gender pay.

How does overpayment happen?

Overpayment can happen for any number of reasons.

Hitting a wrong key can be all it takes to add that extra ‘0’ to your employee’s salary.

Incorrect information provided at the outset of the individual’s employment could also lead to a continual overpayment, as well as other HR issues down the line.

Can I reclaim the money back?

On a discovery of overpayment, this will likely be the first question going through any employer’s head.

The simple answer is yes— you can claim the money back, but you must do so in a certain way to avoid running into any HR speed bumps.

Firstly, do not simply deduct the amount from the employee’s next pay check, especially if you haven’t discussed this with an employee first.

The best course of action is to sit down with your employee, explain what has happened and agree on a repayment arrangement.

This could be just a single deduction, or a drawn out process, deducting small amounts of pay each month. Once a repayment option has been agreed, write up the agreement and make sure your worker receives a copy.

If you cannot agree on a repayment scheme, contact Croner to explore your options.

Is it that simple?

Usually— yes. It is rare that overpayment occurs over an extended period of time, and so it is usually a single error that needs addressing. However, bigger mistakes do happen, and they are a little more complex. Here are two of the most common scenarios: "The employee we’ve overpaid has now left the company."

If the employee in question still has a final wage, you are within your rights to deduct pay from this. If they have not been with the business for some time, technically you still have a right to ask for the money back from the ex-employee.

In this case, you should assess whether it is worth it. If the overpayment is a small amount, it is unlikely to be worth the costly process of taking an employee to court and suffering reputational damage as a result.

If you do decide to proceed, you will need clear proof of overpayment. The employee has been overpaid for a long period of time.

The larger the overall sum, the trickier the issue of repayment becomes. The most important thing in this scenario is that you deal with the issue in a reasonable manner.

If the employee was led to believe they were entitled to their increased wage, they could have a case to defend against any repayment.

The best resolution is to reason with the employee, set out a clear, fair repayment plan, and potentially write off some of the debt if possible as a gesture of good faith on your part.

The law is on your side as an employer when an overpayment is made, but if you handle the situation unreasonably, you could quite easily find yourself facing an employment tribunal.

Expert Support

For further guidance on overpaying workers, or any other pay & benefit issue, contact an expert on 01455 858 132.

About the Author

Clare Parkinson has over 20 years’ experience in the Croner Reward business. As Business Manager, Clare leads a team of Reward Consultants who specialise in the delivery of pay and grading related advice, including tailored pay benchmarking and gender pay reports.

Over the years, Clare has contributed to various industry publications on topics such as gender pay, executive remuneration and market pay trends.

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