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FAQ: The Legalities of Salary Overpayments

By: Garry Crystal - Updated: 27 Nov 2018 | comments*Discuss
 
Deductions Salary Overpayment Employer

Employers are legally entitled to recover salary overpayments. Employers are not actually required to inform employees that these deductions will take place although an agreement should be reached over deductions.

Why Would Salary Overpayments Occur?

It’s quite easy for a mistake to be made over the amount of salary an employee is paid, especially with new employees. The wrong salary figure could have been entered by the payroll department or given to payroll from a manager. In some cases the overpayment may be so small that it could go unnoticed by the employee for months. Employees will usually notice if they have been underpaid but many will never bother querying overpayments, especially small ones. But the overpayment may not even come to the employee’s attention until the employer gives notification of overpayment.

Should Employees Inform Employers if Overpayment Occurs?

If an employee does notice that an overpayment has occurred they should inform employers immediately. These overpayments will simply build up over time. When the employer does notice the overpayments they can actually deduct it from the employee’s next salary. Employees should contact the payroll department to query the overpayments. An employee who allows the payments to build up could be accused of dishonesty by the employer.

Can the Employer Deduct the Overpayments from One Salary?

By rights an employer can deduct all of the overpaid salary from the employee’s next salary payment. This can of course cause difficulties for the employee. But there is no actual employment protection rule that safeguards against this happening. Salary deductions for overpayments are exempt from the Employment Rights Act 1996, which sets out the employee’s rights on wages protection. An employer is legally entitled to recover the overpayment from a single salary.

Should an Employer Inform the Employee of Deductions?

Employers should inform employees of the overpayment situation and the deductions that are going to occur. A good employer will consult with the employee and set up a deduction arrangement that will not cause the employee financial hardship. Employees who did not notice the overpayment may think that because the money has been spent they should not have to pay it back. But complaining about the deduction may not be a good idea if an amicable agreement is to be reached over deductions.

What Are the Alternatives to a Single Salary Deduction?

An employer and an employee should come to an amicable agreement over the frequency and amount of deductions. The employer should ask the employee if a single salary deduction would cause financial hardship. An agreement should be reached on deductions that an employee can comfortably afford such as a period of deductions by instalments. The employer could suggest a short term loan that will help while the overpayments are being deducted.

Can I Complain to Anyone About the Deductions?

Salary deductions for overpayment are exempt from the Employment Rights Act. This means employees who have had deductions made for overpayments cannot take the matter to an employment tribunal. It is possible for employees to sue the employer through the civil courts. An employee would have to prove in court that it was unfair and unreasonable of the employer to deduct the overpayments. Taking the matter to the civil courts is a serious matter, especially if the employee is still employed at the company they are suing.

What Would the Court Consider to be Unfair and Unreasonable?

There are a few reasons why the deductions could be seen as unfair and unreasonable. If the employee had queried the overpayments issue with the payroll department and was then informed that the payments were correct. The employee could then assume they were entitled to spend the money without any recourse. It may also be the case that the employee spent the money after believing they were genuinely entitled to it. If these reasons were applicable then a court may favour on the side of the employee.

What Reason Would a Court Side with an Employer?

A court could favour the employer if it looks as if the employee is trying to benefit from a genuine mistake made by an employer. The ‘unjust enrichment’ principle is a view often taken by the courts. Even if the employee has spent the money under a genuine assumption that their salary figure was correct the court could still side with the employer.

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My Husband is in telesales. the 1st half of this year one of his customers ordered lots of stock over several months also received free gifts at times when offers where on. My husband was offered incentives and encouraged to sell to this customer. It then came to light in June this year she was not paying her invoices. This has been going on and on and now the company have told my husband the customer wont pay and they want to recoup the commision they paid my husband on these sales he made in good faith. t my husband understands they want to recoup their money but he had no idea and was not told he could not sell to this customer and the account was not on hold etc and they are now wanting him to start on a minus of over 12K a month Gross Profit before he would even start to make commisson and they are telling him this needs to be paid back before the end of the financal year in April. this could cause us to be unable to pay our mortgage each month or actually be able to live. My husband is willing to repay and this has not been the issue but i feel they are demanding it be recouped in a timescale (1 payday before christmas) in a very unfair way and i am at my wits end and do not know where we stand?Help??
MRSE1973 - 27-Nov-18 @ 5:47 PM
My daughter was under paid for many months and eventually the payroll department tried to put it right but massively overpaid her. She informed them the same day of the overpayment and after requesting a accurate repayment figure paid back by a debit card payment directly. Basically she was underpaid for months, massively overpaid, not paid anything the following payslip then she asked them to work out how much she owed so she could pay it back and receive normal salaries. She made the payment then this salary has been £0 without them contacting her. She has rent,food and expenses to pay and nothing in bank. Wait times for speaking to payroll are very long(40 minutes before hanging up) and because she has work she can’t wait on phone and has had no email response. Even if they miss calculated can they still just take without notice?
Reflex - 16-Nov-18 @ 10:10 AM
Hi, after maternity leave, I returned part time into a new lower paid role.My employer overpaid me in the first month, I told them. Then the second. I told them. Apparently they’re chasing to sort it. 5 months later, still being overpaid. It’s affected my tax credits for the year. Now they’ve made my new part time role redundant. I’m still there going through the consultation process. Whether I get redeployed or leave the business, where do I stand with repaying? It’s approx £6000. I have £3500 but they want it all taking a chunk of my wage over the next 2 years. I’m a single parent. Nursery costs alone are £800 a month. I’m in a position where I can’t afford to work now
Lizzie - 14-Nov-18 @ 8:23 PM
hi i was employed in april on a 45hr contract, in may i realised i couldnt commit to the 45hrs and asked if i could do less, the manager said fine. since then i have been averaging 30 hrs a week which is much more manageable, spread over 3-5 days per week. i did not notice but the salary remained the same, consequently i have been informed i have been overpaid by nearly £2k, as i am roughly 220 hrs short in my hrs over the past 22 weeks. my employer wants to sit down and discuss two things, one is to decide whether its possible to formally reduce my contracted hrs and also if i am to pay back the overpayments. i have also taken holidays based on my allowance which is based on me doing 45hrs a week, so far i have taken 20 days of 9hrs, leaving me with what i thought was 8 more days of 9 hrs until march but my employer says this will not be correct as they will possibly look to back date all information to when i volountarily dropped my hrs. what can i do ? i worked the hrs i was rota;d on, surely its their fault for only rotaring me for 30 hrs a week for the past 22 weeks ? regards stephen
stevo - 5-Nov-18 @ 5:13 PM
If your overpaid and are paying it back to the employer what about the tax that you paid on the money received ? Would I be due a refund on tax ?
Janzo - 30-Oct-18 @ 3:46 PM
Hi, after maternity leave, I returned part time into a new lower paid role.My employer overpaid me in the first month, I told them. Then the second. I told them. Apparently they’re chasing to sort it. 5 months later, still being overpaid. It’s affected my tax credits for the year. Now they’ve made my new part time role redundant. I’m still there going through the consultation process. Whether I get redeployed or leave the business, where do I stand with repaying? It’s approx £6000. Also haven’t received a new contract, job description, written statement or anything in writing regarding my new role which they’ve now removed. I’ve been there 14 years.
Lizpop - 22-Oct-18 @ 7:13 PM
Hi my employer never agreed or refused special leave in addition to adoption leave. I took the leave and was paid the full pay. Later they said they never agreed to this once I handed in my notice and I have been asked to pay it back. After long negotiations I agreed to pay back the money but they have not processed this through the payroll and asked to to pay back the nett pay by Invoice. I have been taxed and NI’d on these earnings so if I pay the gross pay back by invoice my taxable earnings to date are incorrect. Where do I stand with this please? I believe this should be corrected through the payroll and correct tax figures etc should be FPS’d to HMRC and I should be asked for the nett owed.
DT - 19-Sep-18 @ 3:00 PM
Kay - Your Question:
I left my job in June after a horrible few months of being made to feel inadequate by a poor CEO. My colleagues said I should look into constructive dismissal but at the time I was just relieved to get away. They continued to pay me up for the following two months and now have said I need to pay it back. Is there any grounds for me to keep the money on the basis that I have been unable so far to secure new work because of the unexpected timing (just before the summer break) of leaving and the massive knock to my confidence?

Our Response:
Unfortunately you can't keep money that you are owed on this basis. If you feel you were forced to leave you should seek professional legal advice.
WorkRelationships - 18-Sep-18 @ 3:39 PM
I left my job in June after a horrible few months of being made to feel inadequate by a poor CEO.My colleagues said I should look into constructive dismissal but at the time I was just relieved to get away.They continued to pay me up for the following two months and now have said I need to pay it back.Is there any grounds for me to keep the money on the basis that I have been unable so far to secure new work because of the unexpected timing (just before the summer break) of leaving and the massive knock to my confidence?
Kay - 18-Sep-18 @ 3:10 PM
Overpaid for 5months due to accountant making wages mistakes. Didn't pick up as was on payslips as shift allowance and only happened when company started paying shifts rather than contact time (home carer) apparently all 90+ staff have had same mistake made. Now been told must pay 400+ overpayment back over four months. Can I argue for a longer repayment term to make it more affordable?
Tiger - 18-Sep-18 @ 2:37 PM
Hello, I have been with the same company now for 2 and half years, in August last year i was made redundant and then I took an internal job in sales. I am paid a basic and commission salary. They have been paying me my old basic pay (which I did not notice). So now they want it back. I know I have to pay it back. It's money I should not have had. However, If I want to leave the company they want it to be repaid in full. Now at the moment, I have already paid 2 pyments, but I still owe about £2800. They could not take that from my salary, One I don't think one pay would cover it. Two, Can I still offer my repayment plan or do I have no legal stand with that? Could I ask my future employer to repay them and I continue to pay the new employer? I am getting very stressed, as I am not the happiest at the moment and I have started looking for another job, but I do not have the money to pay them back. Can anyone advise? Thank you. T
Tecumseh - 28-Aug-18 @ 11:39 AM
Ironmanhammer - Your Question:
Hi my employers royal mail paid me night money at £80 per week for a number of years they now want it back.I was informed at the time that I was entitled to this money and subsequently it was paid into my wages and pension on a weekly basis.it has amounted to £17,000 where do I stand on all of this meanwhile I have dropped my hours of working to part time please help.

Our Response:
What does your contract say? Is night money part of your contract? Did you work nights? Sorry it's really not clear. We'd advise you to speak to Citizens' Advice or ACAS with your payslips and contract to hand.
WorkRelationships - 14-Aug-18 @ 3:38 PM
Jack - Your Question:
I left my job in ? February 2016 because of ill health. In November 2016 I received a letter saying I had been over paid. Because I had been on long term sick leave I didn't actually know my last day of employment. I contacted Payroll and explained that I was in no situation to pay it back in one go and wanted to pay instalments. I Never received any further communication. Due to my circumstances at the time I never chased it up and there was no contact dlfrom payroll. I received a letter from a debt collection agency stating that unless I repaired the overpayment they would take legal action.I have no problem repaying the money so offered £10 per month.They want a statement of my income and out goings to work out what I can afford to pay back. Are they entitled to have this information.

Our Response:
If it's to negotiate payment of a debt in instalments instead of a one-off payment, it's fair information to ask of you. Check out this Step Change information for more details.
WorkRelationships - 10-Aug-18 @ 2:27 PM
I left my job in ? February 2016 because of ill health. In November 2016 I received a letter saying I had been over paid. Because I had been on long term sick leave I didn't actually know my last day of employment. I contacted Payroll and explained that I was in no situation to pay it back in one go and wanted to pay instalments. I Never received any further communication. Due to my circumstances at the time I never chased it up and there was no contact dlfrom payroll. I received a letter from a debt collection agency stating that unless I repaired the overpayment they would take legal action. I have no problem repaying the money so offered £10 per month. They want a statement of my income and out goings to work out what I can afford to pay back. Are they entitled to have this information.
Jack - 9-Aug-18 @ 6:20 PM
Freed - Your Question:
It turns out my company had been paying me since DAY 1 a relocation fee (non taxable) of some £350 more than I was entitled too which I did not pick up as it was like that from salary number one.19 months later and they are wanting it back to the tune of 7,125.what are my options here?

Our Response:
You can arrange to pay this in instalments if your employer agrees (they must be reasonable about recouping the overpayments). Did you ever question the element of your pay (on your payslip) that wasn't taxable? It might be worth talking to a union rep or ACAS for advice if so.
WorkRelationships - 3-Aug-18 @ 3:06 PM
Hi my employers royal mail paid me night money at £80 per week for a number of years they now want it back .I was informed at the time that I was entitled to this money and subsequently it was paid into my wages and pension on a weekly basis .it has amounted to £17,000 where do i stand on all of this meanwhile i have dropped my hours of working to part time please help .
Ironmanhammer - 2-Aug-18 @ 10:03 PM
It turns out my company had been paying me since DAY 1 a relocation fee (non taxable) of some £350 more than I was entitled too which i did not pick up as it was like that from salary number one. 19 months later and they are wanting it back to the tune of 7,125...what are my options here?
Freed - 1-Aug-18 @ 4:50 PM
legsy - Your Question:
I had an work related injury in december 2017, was off work for 5 weeks, in my January pay I was over paid, I believed them to have paid me because the accident happened at work.I just had my wage for July 2018, and they have took the full over payment, without prior knowledge, for a previous tax year, as I have my p60 now and that payment is on there, so am my employees aloud to do this?

Our Response:
Yes your employer can reclaim an overpayment. Acas advises employers not to simply deduct money from a worker's future pay but to discuss and agree a repayment arrangement. Is there some valid reason as to why you mistook the payment for something related to the injury? What did it say on your payslip?Talk to HR first of all and ask them why you weren't informed and why it couldn't be taken in instalments. If you're not happy contact a union rep or ACAS for help.
WorkRelationships - 31-Jul-18 @ 2:38 PM
Hi my previous employer kept on paying me after I left the company despite me temping them to stop. I spent the money. When they finically realised their error they demanded full payment. I paid £1500 upfront and we agreed that I could pay £80 per month to clear the rest. They agreed to review this after 3 months but never did. Fast forward a year later, they are now demanding that I increase my monthly instalments. I told them that I can’t afford to do it and £80 is all I can afford. Their reason behind it was that they want the debt paid off quicker as it’s public funds. They threatened to pass it onto their lawyers which will incur more fees. Are they allowed to do this? We made an agreement and I have stuck to it and am up to date with my payments. Can they simply demand more (which I don’t have) and burden me with further debts by passing to their lawyers. I think this is unfair .Please advise. Many thanks
LeeW - 31-Jul-18 @ 8:12 AM
I never received my final payslip so I cannot verify the overpayment. I've been trying to contact the person from the company who sent me the letter regarding the overpayment to get a copy of my final pay slip and the payslip with the overpayment but cannot get hold of her I've been trying for months now. The amount of the alleged overpayment the company claims to have made to me differs from the amount of my monthly salary (when i still worked at the company). Our Response: What are the details on your final payslip? Does it look correct? WorkRelationships - 23-Jul-18 @ 9:56 AM
Ash269 - 30-Jul-18 @ 7:13 PM
I had an work related injury in december 2017, was off work for 5 weeks, in my January pay I was over paid, I believed them to have paid me because the accident happened at work. I just had my wage for July 2018, and they have took the full over payment, without prior knowledge, for a previous tax year, as i have my p60 now and that payment is on there, so am my employees aloud to do this?
legsy - 30-Jul-18 @ 5:58 PM
Cobberwebb - Your Question:
I was overpaid one week and my employer (agency) recovered the over payment over the next two weeks. However, the over payment that has been recovered has not been deducted from my Gross pay for the tax year, which means I have paid tax on it. So now as far as Inland Revenue is considered, I've paid the right amount of tax, but I haven't, I've paid too much because my income for the year is not correct. The employer doesn't understand this.

Our Response:
Sounds like they've treated it as a separate item i.e a recovery payment rather than a reduction in your gross pay. Complain to HMRC or get your HR department to talk to them via their helpline if they can't understand.
WorkRelationships - 25-Jul-18 @ 2:59 PM
I was overpaid one week and my employer (agency) recovered the over payment over the next two weeks. However, the over payment that has been recovered has not been deducted from my Gross pay for the tax year, which means I have paid tax on it. So now as far as Inland Revenue is considered, I've paid the right amount of tax, but I haven't, I've paid too much because my income for the year is not correct. The employer doesn't understand this.
Cobberwebb - 24-Jul-18 @ 6:31 PM
Ash269 - Your Question:
HiI received a letter in May 2018 from my former employer that I left the employment of in July 2016 stating that they have overpaid me (my salary for 1 month after I left) and they would like me to pay the money back and also threatened to take legal action if I do not pay. They claimed to have sent me a letter in August 2016 after I left. I did not received the letter (possibly lost in the post). Upon receiving the letter in May 2018 I've tried numerous time to contact the sender of the letter leaving voice messages with my contact details to call me back to resolve the matter. After the 4th attempt to call then I got through to the person who sent the letter and requested that they send me evidence of the over payment so I could pay it back if it was infact a valid overpayment. I later e-mailed the sender of the letter to put my request in writing but received no reply nor the evidence. Its been a month I am not sure what else to do? as I cannot blindly pay the money based on a claim of salary overpayment. When the overpayment occured I assume it was for unused leave and part of my bonus. What else can I do as I would not want to this to become a legal issue?

Our Response:
What are the details on your final payslip? Does it look correct?
WorkRelationships - 23-Jul-18 @ 9:56 AM
Hi, I have just received a letter today say I owed a lot of money and th company I work for wants it back in one instalment by August 14th, I have been off sick since April and have handed in all my sick notes as I have received them, and they are claiming that they recieved them late, and overpayments for 4 months has occurred. How can this happen seeing as I’ve handed them in as I have gotten them. I cannot physically afford to pay the money back I only work part time due to health reason and this is there fault, they have over paid me again this month knowing I have been off I’ll and been signed off. What should I do? They haven’t even explained how the overpayments happened
Hayley - 21-Jul-18 @ 12:33 PM
Hi I received a letter in May 2018 from my former employer that I left the employment of in July 2016 stating that they have overpaid me (my salary for 1 month after I left) and they would like me to pay the money back and also threatened to take legal action if i do not pay. They claimed to have sent me a letter in August 2016 after I left. I did not received the letter (possibly lost in the post). Upon receiving the letter in May 2018 I've tried numerous time to contact the sender of the letter leaving voice messages with my contact details to call me back to resolve the matter. After the 4th attempt to call then I got through to the person who sent the letter and requested that they send me evidence of the over payment so i could pay it back if it was infact a valid overpayment. I later e-mailed the sender of the letter to put my request in writing but received no reply nor the evidence. Its been a month I am not sure what else to do? as I cannot blindly pay the money based on a claim of salary overpayment. When the overpayment occured i assume it was for unused leave and part of my bonus. What else can i do as i would not want to this to become a legal issue?
Ash269 - 19-Jul-18 @ 6:42 PM
DA - Your Question:
I have received a letter today from my previous employer. I left this job on the 15 October 2017, gave them all the correct details and worked my full notice period. In the letter today (30 June 2018) they claim they have overpaid me due to a mistake on their end meaning I was paid until the end of the month. It has been over 8 months since leaving that job, am I legally bound to repay it? Or can I at least get the amount reduced?

Our Response:
Yes you do have to repay it but it would ureasonable for the employer to expect you to repay it all at once especially if it wasn't clear to you that an overpayment had been made at the time. Ask to repay it in instalments.
WorkRelationships - 3-Jul-18 @ 2:59 PM
H - Your Question:
I overpaid an employee as I was raising an emergency payment and keyed in another employees bank details in error. I called the employee and his boss when I realised the mistake a few days later and luckily the employee had just received his monthly salary so I asked him to return the money. I informed payroll immediately and raised a new Emergency Payment for the correct employee but now my boss is looking to carry out an investigation and I'm worried I will lose my college funding and get the sack. I have worked for the company for nearly a year and have passed orobation and my year end review (my probation was extended due to having 6 weeks off with an eye ulcer).

Our Response:
This was a simple mistake and you did what you could to rectify it promptly. Unless this is one of many mistakes it's probably unlikely that you could be dismissed for it.
WorkRelationships - 3-Jul-18 @ 2:49 PM
I have received a letter today from my previous employer. I left this job on the 15 October 2017, gave them all the correct details and worked my full notice period. In the letter today (30 June 2018) they claim they have overpaid me due to a mistake on their end meaning I was paid until the end of the month. It has been over 8 months since leaving that job, am I legally bound to repay it? Or can I at least get the amount reduced?
DA - 30-Jun-18 @ 9:49 AM
I overpaid an employee as I was raising an emergency payment and keyed in another employees bank details in error.I called the employee and his boss when I realised the mistake a few days later and luckily the employee had just received his monthly salary so I asked him to return the money.I informed payroll immediately and raised a new Emergency Payment for the correct employee but now my boss is looking to carry out an investigation and I'm worried I will lose my college funding and get the sack.I have worked for the company for nearly a year and have passed orobation and my year end review (my probation was extended due to having 6 weeks off with an eye ulcer).
H - 30-Jun-18 @ 6:53 AM
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