Staff overpayments can be reclaimed if you follow these steps

Travel Weekly has teamed up with leading industry employment lawyer Ami Naru for a regular column offering answers to readers’ legal questions on employment/HR matters. Ami will cover the latest employment issues facing the industry and respond to questions and dilemmas posed by you. In this column, Ami answers a reader’s questions about overpayments to staff.

 

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Q. We accidentally overpaid a member of staff due to a payroll error. Do we have to write this off as a loss or can we reclaim the money and, if so, how should we go about it?

A. In most cases an employer is legally entitled to recover an overpayment of wages, even if the error was entirely the company’s fault. Under UK law, an overpayment of wages is considered a debt owed to the employer. However, how you handle the recovery is just as important as whether you have the right to reclaim the funds.

First, you should act promptly once the error is discovered and hopefully before the employee has spent the money! Notify the employee in writing and face-to-face to explain the nature and amount of the overpayment and invite them to discuss how the money can be repaid. If you act swiftly and the overpayment is clear, the matter should be resolved with ease.  

 

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Most disputes, however, arise not from the fact that the repayment is requested, but from how the employer goes about it. I would not encourage heavy-handed deductions from wages without agreement, as this can cause unnecessary tension and even lead to legal claims.

 

You do not say how much the overpayment was, as another consideration is whether the employee could have reasonably believed they were entitled to the extra money, especially if the amount in question is small. In rare cases, if the overpayment went unnoticed for a long time and the employee relied on that income (for example, committing to financial obligations on the assumption it was correct), a court might find that full repayment is unfair. These situations are exceptions, but they illustrate why swift and transparent communication is key.

 

If the employee agrees to repay the amount, the next step is to arrange a repayment plan if the overpayment is large. Many employers deduct the amount from future wages in instalments, especially if the overpayment is substantial. If the overpayment is small in nature, then repayment will be easier. Importantly, any deductions should not reduce the employee’s pay below the national minimum wage for the hours worked in a given pay period, as doing so would be unlawful.

 

If the employee disputes the overpayment or refuses to repay, then things can get trickier. You may still be entitled to recover the funds through a civil claim, but this is rarely a desirable route. Legal proceedings are time-consuming and could be costly, so you will need to weigh this up against the value of the overpayment. In rare circumstances, even if you get a court order in your favour for repayment of the money paid in error, sometimes further action is required to enforce the order. 

Human errors and indeed software errors will happen from time to time, so it’s good practice to have a clause in employment contracts or staff handbooks explaining the company’s right to recover overpayments. That way, staff are aware of the policy from the outset and less likely to contest a genuine recovery request.

■ This article is not a substitute for formal legal advice.