In most circ*mstances an employer has the right to claim back money if they've overpaid someone. They should contact the employee as soon as they're aware of the mistake.
If an employee notices an overpayment in their payslip, they should talk to their employer as soon as possible.
Agree how the money is paid back
An employer should not deduct money from their employee's wages without letting them know.
The employer should talk to the employee first and agree how the money will be paid back.
For example, if the employer recently made a simple overpayment, they could let the employee know that they'll deduct it from the next pay. They could also agree to pay the money back a different way, for example by bank transfer.
If the overpayment was a large amount or over a long period of time, an employer should:
- be flexible and fair claiming the money back
- agree a repayment plan– this can help the employee manage their finances
Contact the Acas helpline to discuss your options if you:
- cannot agree a repayment plan
- believed you were being paid the correct amount and will struggle to pay the money back
Looking after an employee's wellbeing and mental health
In some situations, an employee might be worried about paying back money. This can be stressful.
It's important that employers consider the wellbeing and mental health of their employees.
Looking out for your employees' wellbeing and offering support can help prevent:
- absence
- mental health problemsarising
- existing mental health problemsgetting worse
The employer should share any specialist help available through work, for example through an employee assistance programme (EAP).
Find out more about supporting an employee with work-related stress
If someone has left the organisation
If an employee owes money but no longer works for the organisation, the employer should contact them. They should explain why they think they owe them money and how much.
If the former employee refuses to pay back the money, the employer might be able to make a court claim to get the money back from them.
Find out more about making a court claim on GOV.UK
Contact the Acas helpline
For more advice about overpayments and paying back money, contact the Acas helpline.
FAQs
How to correct a payroll overpayment
- Step 1: Identify the cause of the error. ...
- Step 2: Calculate the overpayment amount. ...
- Step 3: Get familiar with overpayment laws in your area. ...
- Step 4: Determine your options. ...
- Step 5: Notify your employee. ...
- Step 6: Adjust payroll.
If the overpayment was a large amount or over a long period of time, an employer should:
- be flexible and fair claiming the money back.
- agree a repayment plan – this can help the employee manage their finances.
Payroll deductions are wages withheld from an employee's total earnings for the purpose of paying taxes, garnishments and benefits, like health insurance. These withholdings constitute the difference between gross pay and net pay and may include: Income tax.
Can employers deduct overpayment due to payroll? ›
Under the Federal Labor Standards Act (FLSA) - the federal law governing wage and hour issues - employers can deduct the full amount of overpayments to employees, even if doing so would bring the employee's wages below minimum wage for the pay period. Need Professional Help? Talk to an Employment Rights Attorney.
What is the procedure to resolve an overpayment? ›
When a business receives an overpayment, it is required to notify the customer and to offer to refund the excess amount or apply it as a credit toward a future invoice. The agreed-upon resolution should be documented and implemented quickly.
How do you fight overpayments? ›
Whether or not you think you were overpaid, you can also ask SSA to waive the overpayment by filing a Request for Waiver Form (SSA-632-BK). You can also call your local Social Security office and ask them to take your appeal over the telephone.
What is an example of an overpayment? ›
The following is a simplified example of a gross overpayment amount and paycheck reduction: Example: Employee A was paid $500 on their check for the 1/31 pay period. Employee A should have been paid $400. This results in a gross overpayment of $100.
Can an employer deduct money from my wages? ›
An employer is allowed to deduct certain items from an employee's paycheck if the employee has voluntarily authorized the deduction in writing. Examples of such deductible items are union dues, charitable contributions, or insurance premiums.
How should our practice handle patient overpayments credit balances? ›
The best practice is to return an overpayment to the responsible payor upon identification. In the case of a credit balances owed to a patient, should a provider be unable to locate the patient or find a valid address to return the overpayment (due to a variety of factors), your State's escheat law must be considered.
How do you account for payroll deductions? ›
Record gross wages as an expense (debit column). Record money owed in taxes, net pay and any other payroll deductions as liabilities (credit column). Check the initial entry to make sure the credit column equals the debit column.
Submit a new Form W-4 to your employer if you want to change the withholding from your regular pay. Complete Form W-4P to change the amount withheld from pension, annuity, and IRA payments. Then submit it to the organization paying you.
What is the largest deduction from your paycheck? ›
The largest amount withheld from your wages is usually for federal income taxes. The amount withheld is based on your gross income, your W-4 Form, and a variety of other factors. Your employer also withholds 6.2% of your wages to pay your portion of the Social Security tax to help fund Social Security and Medicare.
How to handle overpayment of wages? ›
How To Correct a Payroll Overpayment
- Step 1: Gather Data. Before taking any action to correct overpaid wages, you'll need to get your facts straight. ...
- Step 2: Check State Laws and Company Policies. ...
- Step 3: Notify the Employee. ...
- Step 4: Discuss Repayment Options with the Employee. ...
- Step 5: Adjust your payroll.
Employees who defy their obligation to repay overpayments can be discharged, absent special circ*mstances. And if an employee is exhibiting dishonesty by refusing to repay money obtained in a windfall, then even the EDD may think twice, and deny unemployment benefits.
How do I write an overpayment letter to an employee? ›
Overpayment letter to employee template for immediate use
You are receiving this letter because an overpayment has been issued to you in the amount of $XXXX. XX due to: (State Reason Here). Please sign, date, and return the form below within X days. I have been notified of an overpayment in the net amount of $XXXX.
Do you have to return money paid in error? ›
It's important to know what your obligations are when you pay another party because in some situations you may be out the money. While the general rule is that you can get back money mistakenly paid to someone, this rule does not apply if the overpayment falls under the “voluntary payment doctrine.”
Can my employer take money out of my paycheck for a mistake? ›
A. No, your employer cannot legally make such a deduction from your wages if, by reason of mistake or accident a cash shortage, breakage, or loss of company property/equipment occurs.
Does overpayment affect taxes? ›
A tax overpayment will result in a refund at the end of the year, which means your taxes are paid in full, and you receive the difference as a refund. The problem with underpaying your taxes is that you'll still owe taxes at the end of the year.
How to correct payroll errors? ›
How to Handle Payroll Errors
- Step 1: Briefly state the error and apologize. ...
- Step 2: Describe what caused the error and show the employee exactly how the correct pay should have been calculated. ...
- Step 3: Explain what steps are being taken to fix the error and to ensure it is not repeated.
