What to Do if You Have Overpaid Your Employees in England

As an employer, you are only human and prone to make mistakes. One such mistake can be an accidental overpayment of your staff’s wages. Working out pay can be complicated, especially when there are different pay rates to consider. However, when you overpay your employees by mistake, you must be careful how you reclaim this since it can easily result in a dispute. This article will explain what to do when you overpay your employees in England and whether you can subsequently deduct money from your employee’s wages. 

When Can You Deduct Money From Your Employees’ Pay?

If you need to deduct money from your employee’s wages, there are only certain circumstances when this is lawful. One of these is where you have overpaid them by mistake, such as through a payroll error. Due to a payroll error, employees may have received more pay than they were entitled to. 

While it is your legal right to reclaim an overpayment of wages, there is no harm in including this in your employees’ employment contracts as a right where payroll errors occur. Having this right detailed within their employment contracts can assist in making the recovery of an overpayment of wages easier. You should note that where you made an overpayment more than six years ago, you are not legally entitled to reclaim it.

What to Do if You Overpay Employees

Whilst an overpayment of your employee’s wages means that you have a right to deduct money from their pay to reclaim it, there are ways you should go about doing so as good practice. Firstly, you should let them know that you have accidentally overpaid them and should do this as soon as you see the mistake. 

Secondly, you should inform them how you intend to reclaim the overpayment. For example, you can reclaim it as one lump sum or claim it back in instalments but must provide your employee with notice before retrieving an overpayment. Repayment will generally be through a deduction in your employee’s next pay, but they wish to repay the overpayment differently, such as through bank transfer.

Repayments

You should be flexible when asking your employee to repay the overpayment. This is especially the case where you made the overpayment some time ago. Therefore, offering your employee a repayment plan that suits their financial situation is good practice. In addition, it is good practice to put any repayment agreement in writing.  

However, your employees may find the prospect of paying back an overpayment a struggle at times or may dispute that you have overpaid them. Therefore, if you cannot agree on a repayment plan, you should not proceed to deduct from their wages.

Where you do not have your employee’s consent, or you did not provide notice, your employee may claim constructive dismissal. Constructive dismissal is when your employee leaves your workplace because you have violated the terms of their employment contract.

What Happens if the Employee Defends the Overpayment?

Your employee may be in a position to defend against the overpayment and refuse to pay back. For example, your employee might refuse if you made the overpayment a long time ago or you cannot agree on a repayment plan. Furthermore, your employee could argue that you led them to believe they were entitled to the overpayment. Consequently, the employee relied on this representation. On these occasions, you may consider writing off the debt.

What Happens if the Employee No Longer Works for You?

You can recall accidental overpayment of your employees’ wages by deducting them from their pay. However, this will not be possible if the employee no longer works for you. Where this occurs, you should make an informal request for repayment. You should initially contact them and explain that you created an overpayment of their wages and the amount they are for. 

Your previous employee may offer to repay the amount. However, you may find that a previous employee refuses to repay it. Where this occurs, you may be able to claim through the courts. Nevertheless, the cost of court proceedings could outweigh the amount you overpaid your employee. In this instance, it would be wise to reconsider whether or not to pursue litigation.  

Key Takeaways

If you overpay employees, you can generally reclaim these overpayments. For example, if the overpayment occurred six years ago, you do not have a legal right to reclaim it. Also, your employee may defend the claim because you led them to believe they were entitled to the overpayment. Therefore, when you request an overpayment of wages from your employee, you should consider the financial impact on the employee. 

If you need help regarding employee overpayments, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.

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