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FAQ: The Legalities of Salary Overpayments

By: Garry Crystal - Updated: 9 Aug 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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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
My Husband has just been told that he's been over paid by £2,000 and the company want the money back. He didn't realise he had an overpayment because it happened when he got his pay rise so assumed that's what it was. The company have also moved him from his night job to a day job so he now loses a considerable amount of money. What can he do??
NL - 13-Jun-18 @ 1:17 PM
Hi, I have a query regarding overpayments. I know someone who left their job, the employer then continue to pay them for another month, and issued them with a P45 showing that month's payment. Is the employer then entitled to reclaim the overpayment or are they now unable to because they have issued the P45? jsp1
JSP1 - 7-Jun-18 @ 3:58 PM
Sam - Your Question:
I have just been informed that I have been overpaid for the last year. I reduced my hours from 36.5 to 32 last March following aspell of anxiety and depression. I hadn't even noticed that my pay hadn't changed as I often have other deductions taken out at source. My payslip does not state how many hours worked and I submit a timesheet every month claiming 32 hours a week which is seen by 2 managers before payroll. I leave in 2 weeks. Can my employer legally stop my last wage? And can I contest it?

Our Response:
This may be difficult. If you decreased your hours, it would have made sense to look at your gross pay to see how it had changed and/or to question why your salary hadn't gone down in accordance with the reduction in hours. You should talk to ACAS about this before deciding whether to take action...it sounds to us like your employer should take a bit of responsibility but so should you for not questionning it.
WorkRelationships - 4-May-18 @ 12:00 PM
I have just been informed that I have been overpaid for the last year. I reduced my hours from 36.5 to 32 last March following aspell of anxiety and depression. I hadn't even noticed that my pay hadn't changed as I often have other deductions taken out at source. My payslip does not state how many hours worked and I submit a timesheet every month claiming 32 hours a week which is seen by 2 managers before payroll. I leave in 2 weeks. Can my employer legally stop my last wage? And can I contest it?
Sam - 2-May-18 @ 2:51 PM
NIKNIK - Your Question:
I applied for a TA position in a school working 2 days a week, I was given my contract which I signed and returned 18 months down the line I have now been informed that the contract was for 2.5 days and they have been overpaying me and have now asked for the money back, what is my rights?

Our Response:
If the contract you signed was for 2 days and that's what you thought you were being paid for, you may not have to pay this back - you need to contact someone who can look at your contract. Try ACAS for more information
WorkRelationships - 11-Apr-18 @ 3:08 PM
I applied for a TA position in a school working 2 days a week, i was given my contract which i signed and returned 18 months down the line i have now been informed that the contract was for 2.5 days and they have been overpaying me and have now asked for the money back, what is my rights?
NIKNIK - 11-Apr-18 @ 12:19 PM
Hi, I have just been overpaid last Thursday by 1000 pounds. The payroll lady was out of the office. I went to see her first thing Tuesday after bank holiday and asked if I could repay the money to ensure my P60 was correct. We are now 3 days on and so many excuses and she said she would give me all the details today to ensure the money was back in time for the correction. No surprises she did not come to work and emailed in to say don't worry about she will take back overpayment next month (month 1). This will now leave my P60 incorrect and next year's also. She suggested about doing an earlier year up date but I am still left with an incorrect P60. Is this even aloud? given that I have made all attempts to repay the overpayment which they did not even know they did. Thanks
H705 - 5-Apr-18 @ 9:49 PM
My internship contract was extended for another 6 months and I terminated it early as I got a proper job. I notified the agents and my manager and finished working at the end of September. I was paid until the end of my contract, a month and a half later. However, I know that I owe them money but my contract actually states that the intern shall inform in writing immediately upon termination of the agreement by either the client or the Intern. A failure by the Intern to comply with the provisions above may result in the intern being liable to repay any overpayment made etc etc. As I did notify them, and so did my manager, several times, am I still liable to repay? The contract isn't very comprehensive and that clause seems to state otherwise... Thanks in advance
vra - 26-Mar-18 @ 1:34 PM
Nicole - Your Question:
I started my job 15 months ago after being on maternity leave. I applied for a full time job and did work full time for the first few weeks. I then realised I was struggling to work full time and was missing out on valuable time with my baby. I went straight the area manager and emailed him asking if I could drop one day a week - so to work 4 days. He said he would discuss it with my branch manager and would be in contact with me. when I went to work the next day, my manager told me it has been agreed for me to take every money off and that was all that was said. A few weeks ago it was decided that my role (admin) would be changed to a property manager and was called into a meeting to discuss this. in the meeting, it was brought up that I had been wrongly paid for all this time and they would look to recover it. Nothing further was said, I then revived a letter home to say that I owe £5000 and that they were going to deduct this in £500 instalments starting from March's pay. Can they do this? where do I stand?

Our Response:
Yes if you were overpaid, your employer is entitled to recover it. Make sure you check that the overpayment is correct - ask your employer to give you full details. Was this something you should have noticed in your pay? Did you question it at the time?
WorkRelationships - 26-Mar-18 @ 10:57 AM
Hi left a job back in April last year for a new job. My previous employer got in contact with me to say she had over paid me, she told me should would text me their bank details so I could pay them back. A week later I finally revived a letter with her details, but by this time all my house hold bills had gone out so couldn't pay the full amount. Solicitors got involved on her side. Due to health I became unemployed and was living off help from family. I love alone. I wrote a letter saying that id pay back £10 a month until I gained my health and could start work again i would increase the amountI paid back. I'm still not working yet I have revived a letter from their solicitor again saying they will take me to court as I'm not paying the amount that they won't back. I never agreed to their terms as I knew I couldn't afford it. I have paid every month since tbis, not missing one payment or even been late with the payment. Can they still take me to court?
DairyQueen - 24-Mar-18 @ 5:02 PM
I started my job 15 months ago after being on maternity leave. I applied for a full time job and did work full time for the first few weeks. I then realised I was struggling to work full time and was missing out on valuable time with my baby. I went straight the area manager and emailed him asking if I could drop one day a week - so to work 4 days. He said he would discuss it with my branch manager and would be in contact with me. when I went to work the next day, my manager told me it has been agreed for me to take every money off and that was all that was said. A few weeks ago it was decided that my role (admin) would be changed to a property manager and was called into a meeting to discuss this. in the meeting, it was brought up that I had been wrongly paid for all this time and they would look to recover it. Nothing further was said, I then revived a letter home to say that I owe £5000 and that they were going to deduct this in £500 instalments starting from March's pay. Can they do this? where do I stand?
Nicole - 23-Mar-18 @ 12:27 PM
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