As an employer, you want to do right by the people you hire, and that means paying them on time and ensuring their paychecks are the right amount. And as an employee, you want your correct pay on time. But mistakes happen—even with paychecks.
For employers, you want to fix these mistakes quickly and keep your employees informed about the process. As an employee, you want to understand your paycheck rights and what happens when your employer messes up your paycheck.
So, what exactly happens when there’s a payroll mistake, and how long does an employer have to fix a payroll error? Let’s dig deeper.
What Is a Payroll Mistake?
A payroll mistake happens when an employer overpays or underpays an employee for a given pay period.
This can happen for reasons like:
- Deducting the wrong amount for tax withholding or employee benefits
- Accidentally sending a retroactive payment to the wrong person
- Paying the wrong amount to employees who used paid time off (PTO) or took unpaid time off
- Paying an old pay rate after an employee gets a raise
- Paying hourly employees for the wrong number of hours or the wrong hourly rate
- Missing a new hire’s first paycheck
- Not cutting the final paycheck in a timely manner after an employee quits
- Not meeting minimum wage standards as stipulated by the Fair Labor Standards Act (FLSA) or by your state government (whichever is higher)
Most employers aren’t messing with employees’ pay maliciously or on purpose. But humans make mistakes, and these types of errors often happen due to incorrect data entry or administrative oversight.
Using full-service payroll software like Hourly can help you reduce mistakes that occur because of manual errors. Hourly uses real-time attendance and time tracking data to calculate pay for your entire team automatically, so you don’t have to.
How Soon Should Employers Fix a Payroll Mistake?
Employers should fix any payroll errors right away. For most employers, that means by the next paycheck.
That said, you might not find the error or the employee might not report it quickly. In that case, it’s important to know about payroll processing laws and employee pay rights when the error is uncovered.
There are currently no federal laws on how quickly you need to fix a paycheck. That doesn’t mean you can take your time—particularly if you underpaid an employee. Every state has its own laws on how long you have to pay back an employee you underpaid (which is also known as giving them back pay).
For example, according to Oregon Payroll Law, you can wait until the next regular payday to correct an error if the underpayment amount is less than five percent of the total gross amount. But if the underpayment is more than five percent of your employee’s gross pay, you only have three business days after receiving notification to pay up.
Some states set a standard number of days for fixing payroll errors. In Florida, employers have 15 calendar days to correct a paycheck error for employees who receive minimum wage if the underpayment violates the state minimum wage law. The 15 days begins on the day the employer receives a notification in writing from the employee.
You can check your state’s department of labor website to learn about the labor laws that apply to your business.
What Should Employees Do About Payroll Errors?
If you’re an employee and you notice that your paycheck has an error, you should let your employer know right away. Specifically, let them know what the problem is and share a copy of your pay stub as proof. This way, management or human resources (HR) can fix the problem as soon as possible.
What about Filing a Complaint with the Federal Government?
If the payroll error is not resolved, employees have two years from the day of the paycheck error to file a complaint with the federal Wage and Hour Division, which oversees back pay.
If you believe that your employer withheld your pay on purpose (as opposed to making an unintentional mistake), you have three years to send in your complaint.
If a complaint is filed, there is no federal law detailing a back pay timeline for employers. Instead, guidelines for how much employers owe employees and when it has to be paid are determined by the Wage and Hour Division when they review employee complaints.
Employees may be awarded liquidated damages as well, which is compensation for the additional losses they may have experienced because of underpayment. For instance, not having a full paycheck may mean that an employee couldn’t pay off their bills or credit card in full and was hit with late payment penalties. Or they could be at risk of foreclosure.
Liquidated damages are usually equal to the amount of back pay an employee is owed. So, if you’re an employee, and you’re owed $500 worth of back pay, you would receive $500 in back pay plus $500 in liquidated damages.
Can You File a Complaint with Your State Government?
Yes, you can also file a complaint with your state. The process may vary depending on where you live, but you can usually reach out to the labor department or agency that handles labor laws.
If the state government finds that the employer has violated labor laws, they may require the employer to pay back wages or other compensation owed to you. They may also impose fines or other penalties on the employer to discourage future violations.
It's important to note that there are deadlines for filing complaints with the state government, so you should act quickly if you believe that your employer has made a payroll error.
Can You File a Lawsuit?
Alternatively, as an employee, you can take private legal action and file suit for back pay plus liquidated damages and attorney’s fees. While you might win more money in a private lawsuit, they can be time-consuming and have a negative impact on your relationship with your employer.
You should consult an attorney for legal advice before deciding to sue your employer.
Do States Fine Employers For Payroll Errors?
In addition to requiring back pay, some states impose penalties on employers for wage law violations.
For example, California Wage Law includes penalties for late paychecks or underpayment mistakes. Employees in California are entitled to a full day of wages at their regular rate for each day it takes their employer to fix the mistake (up to a total of 30 days).
Let’s say that you’re an employee in California and receive your paycheck three days late. This means you’re entitled to an additional three full days of pay, even though your employer fixed the paycheck error. If you earn $150 per day, you’re entitled to $450 in waiting time penalties.
If you’re an employer, you can avoid problems like this by using payroll software like Hourly, which emails you payroll reminders, so you don’t forget any paydays.
If you believe you’ve paid your employee the right amount, you can dispute their wage claim. Each state has its own rules for how disputes are handled.
What If I Overpaid an Employee?
Sometimes payroll errors mean employees get more in their paycheck than intended. Overpayment errors are tricky for employers and employees. Employees naturally wish they could keep the money. Employers need to correct the error but don’t want to make employees mad.
Here are three ways an employer can fix an overpayment.
- Ask to be paid back the amount you overpaid in one lump sum.
- Withhold the entire amount from a future paycheck to fix a payroll error.
- Spread out the repayment by taking smaller bites out of paychecks until the overage is all paid back. Employers sometimes choose this option if deducting the whole amount would put them at risk of violating minimum wage payments.
While employers have the right to get back their money, most states require that they notify employees before deducting anything from their paychecks.
According to Federal law, an accidental overpayment is treated as an advance of wages. This means that the employer can recoup their money by deducting the amount that was overpaid from an employee’s future paycheck, even if doing so cuts into the employee’s minimum wage or overtime payment.
That said, some states do not allow employers to make deductions that would cut into minimum wage payments, which means the employer may have to spread out the deductions to avoid a minimum wage violation.
Some states also limit how much money you can deduct from a single paycheck. For instance, Indiana payroll law states employers can’t deduct more than 25% of an employee's total pay from a single paycheck. So, if you overpaid an employee by 30%, you would have to spread deductions out over two paychecks. This lets you recoup your money without drastically affecting the employee’s regular income.
As an employer, if your state has laws that limit how much you can deduct from an employee’s paycheck to fix a payroll error, you have to follow your state’s law, even if the federal law is more lenient.
Putting It All Together: How To Resolve Payroll Discrepancies
Employers generally try to fix payroll discrepancies as soon as errors are discovered. If you stop errors before checks and direct deposits are processed, it is even better since the mistakes never reach the employees.
While federal law dictates how long employees have to claim a payroll error, each state sets rules for how fast employers have to fix payroll mistakes once they know about them.
Your state’s department of labor website should have the most up-to-date information on the regulations for the payment of wages. Quick corrections help keep your payroll records accurate and prevent your employees from getting too angry.
In an ideal world, however, your payroll runs smoothly, and you pay every employee’s wages on time. One way to do that? Start using payroll software and take manual data entry out of the equation.
