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FAQ: The Legalities of Salary Overpayments

By: Garry Crystal - Updated: 21 Nov 2017 | 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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I went from a shift supervisor to a day shift supervisor and payroll never amended my pay as apparently shift supervisors were put on a higher rate unawares to myself and now 2.5 years later it has been brought to their attention and they're wanting this money paid back now I'm worried how much they can take each week which I can't really afford. Where do I stand? Thanks
Weegraeme - 21-Nov-17 @ 2:14 PM
Sam - Your Question:
A year and a half ago my girlfriend was asked to cover a managers role within her company. Her salary was increased accordingly. When a new manager started she returned to her old role. However her salary remained at the manager level. On month one she informed her managers and payroll that she believed she may have been overpaid. They stated it would be looked in to. Month 2 the same thing happened. Once again she was informed it would be looked into. Month 3 the same thing happened. At this point she informed them for a 3rd time and stated that barring any communication or change in her salary she assumed that this was now correct and they had decided to keep her on the higher salary. No response was received. Now a year and a half down the line someone has decided that she has in fact been over paid and they want it all back. Where do we stand legally here? Would this fall under estoppel law? We're 7 months pregnant and could really do without the stress of it let alone the financial impact!

Our Response:
Did the employer respond to the final communication (even if it was just to say they were still investigating)? If they didn't respond, when they had the chance there may be a legal loophole which gives her the right to keep it. We can't really advise on this as we don't have sight of the full correspondence and details. Try ACAS first of all.
WorkRelationships - 17-Nov-17 @ 3:13 PM
A year and a half ago my girlfriend was asked to cover a managers role within her company. Her salary was increased accordingly. When a new manager started she returned to her old role. However her salary remained at the manager level. On month one she informed her managers and payroll that she believed she may have been overpaid. They stated it would be looked in to. Month 2 the same thing happened. Once again she was informed it would be looked into. Month 3 the same thing happened. At this point she informed them for a 3rd time and stated that barring any communication or change in her salary she assumed that this was now correct and they had decided to keep her on the higher salary. No response was received. Now a year and a half down the line someone has decided that she has in fact been over paid and they want it all back. Where do we stand legally here? Would this fall under estoppel law? We're 7 months pregnant and could really do without the stress of it let alone the financial impact!
Sam - 16-Nov-17 @ 7:06 PM
Lizzy - Your Question:
In February this year after using up my holiday entitlement I took unpaid leave as my father was very ill and subsequently died in March 2017. Following his death I was on paid sick leave but only until April 2017 when I decided that I was not going to return to work I knew that I was only going to receive a small proportion of my normal pay as I had taken the unpaid leave and this did appear to be the case when I checked my account. I was not able to access any copies of my payslips as these were only available on my employer's intranet which I could not access from outside work and copies of the payslips were not sent out. In June 2017 some two months after leaving the employer I was informed that I had been overpaid by £135 and that they wanted it back. Up to this point I had absolutely no idea that I had been overpaid and unfortunately did not have the money to hand to pay them back. I have received a further demand for this money but wondered if I really do have to pay it back. The fact I was unable to see any of my payslips from February onwards left me somewhat in the dark. To this day I have still not seen them!! Do I have reasonable grounds to refuse to pay it back?

Our Response:
Your employer does have a responsibility to supply you with a pay slip. Your employer may argue that these were available on a company intranet which, of course you couldn't access, but you should possibly take some responsibility for not requesting a printed or emailed copy. Have you done so yet? Your employer does have a right to ask for the money back. You might be able to negotiate repayment in instalments.
WorkRelationships - 1-Nov-17 @ 2:40 PM
Stacey- Your Question:
HelloI recently left a job to look after my children and I then received a letter 1 or 2 months after stating I was overpaid my last pay packet by £460 (Total £660 overpaid £460). Do I have any rights as they said that I had not been terminated by my site boss and I was still classed as a employee even though I worked my notice and had not been to work for this 1 to 2 month period. I managed to stop the next pay packet before the pay day. As I'm not currently working only my husband this is hard to repay.

Our Response:
Did you realise the mistake and contact the employer? Your employer does have the right to claim this back unfortunately, although if you followed the procedure correctly and they got it wrong, it's only fair that they take it back in stages.
WorkRelationships - 1-Nov-17 @ 9:55 AM
In February this year after using up my holiday entitlement I took unpaid leave as my father was very ill and subsequently died in March 2017. Following his death I was on paid sick leave but only until April 2017 when I decided that I was not going to return to workI knew that I was only going to receive a small proportion of my normal pay as I had taken the unpaid leave and this did appear to be the case when I checked my account.I was not able to access any copies of my payslips as these were only available on my employer's intranet which I could not access from outside work and copies of the payslips were not sent out. In June 2017 some two months after leaving the employer I was informed that I had been overpaid by £135 and that they wanted it back.Up to this point I had absolutely no idea that I had been overpaid and unfortunately did not have the money to hand to pay them back. I have received a further demand for this money but wondered if I really do have to pay it back.The fact I was unable to see any of my payslips from February onwards left me somewhat in the dark.To this day I have still not seen them!!Do I have reasonable grounds to refuse to pay it back?
Lizzy - 31-Oct-17 @ 12:00 AM
Emily - Your Question:
I left an employer in August I asked before leaving what my final pay would be and they said I had to wait for pay day to arrive so I did and I got paid my regular amount I assumed this must be due to holiday etc and must be correct as I had spoken to payroll before the next pay day came a month after I left and I was paid a full month knowing this was a mistake I called them immediately they said my manager had to make me a leaver on the system and I had to contact them I did that left a message emailed even contacted on Facebook! As soon as they had done this I contacted payroll via phone as I was worried the previous month was wrongly paid too they were no help I emailed them and they simply said I owed £2300 not broken down for me just an amount then gave me an account to pay this in to I obviously asked if this could be paid in installments and they advised me I could pay it to them in one lump sum or pay through Dryden Fairfax the debt collectors although having looked on their site it said that this was done once an employer had contacted me to set up repayment and I had ignored and then they had no choice to take legal action. I am worried this will reflect badly on me when I only asked to pay it off in instalments I not only agreed to pay back the full amount but I called them! I can pay it in one go but it will leave me short of money this close to Christmas but I am more worried at the thought of a solicitor being involved which seems a little unfair.

Our Response:
It's up to your employer, to decide whether to take the money in instalments or whether to claim it back in one lump sum.
WorkRelationships - 30-Oct-17 @ 11:24 AM
Hello I recently left a job to look after my children and I then received a letter 1 or 2 months after stating I was overpaid my last pay packet by £460 (Total £660 overpaid £460). Do I have any rights as they said that I had not been terminated by my site boss and I was still classed as a employee even though I worked my notice and had not been to work for this 1 to 2 month period. I managed to stop the next pay packet before the pay day.As I'm not currently working only my husband this is hard to repay.
Stacey - 29-Oct-17 @ 12:03 PM
I left an employer in August I asked before leaving what my final pay would be and they said I had to wait for pay day to arrive so I did and I got paid my regular amount I assumed this must be due to holiday etc and must be correct as I had spoken to payroll before the next pay day came a month after I left and I was paid a full month knowing this was a mistake I called them immediately they said my manager had to make me a leaver on the system and I had to contact them I did that left a message emailed even contacted on Facebook! As soon as they had done this I contacted payroll via phone as I was worried the previous month was wrongly paid too they were no help I emailed them and they simply said I owed £2300 not broken down for me just an amount then gave me an account to pay this in to I obviously asked if this could be paid in installments and they advised me I could pay it to them in one lump sum or pay through Dryden Fairfax the debt collectors although having looked on their site it said that this was done once an employer had contacted me to set up repayment and I had ignored and then they had no choice to take legal action. I am worried this will reflect badly on me when I only asked to pay it off in instalments I not only agreed to pay back the full amount but I called them! I can pay it in one go but it will leave me short of money this close to Christmas but I am more worried at the thought of a solicitor being involved which seems a little unfair.
Emily - 27-Oct-17 @ 7:19 AM
Tommy - Your Question:
I was promoted to a new role 3 years ago. At the time I requested a pay raise to cover the new role. Instead of the pay raise I was offered a bonus. I was never provided with a new contract despite asking. My new bonus was set up within my companies HR system and I was able print a copy of the bonus details. After 3 years my employer informed me that I should have never received the bonus and are recoving the bonus payments. They have increased my pay going forward to cover the promotion and have now given me a new contract. I would have never taken the role 3 years ago unless there was an additional incentive. Where do I stand legally on the recovery of the bonus by my employer.

Our Response:
Ifyou were provided details of the bonus details and were paid it in accordance with those details, you shouldn't have to repay it. It's probably worth taking this further, in view of the lack of relevant payment for the work in the new role during the past 3 years. Start with ACAS
WorkRelationships - 25-Oct-17 @ 3:13 PM
Jay - Your Question:
My son was working for a contractor via an agency and was overpaid. The agency has asked for him to repay the gross sum he was overpaid plus vat. He is not vat regisitered and the agency have now wavered the vat as a goodwill gesture, although I can't see why he would be expected to pay back vat. If my son pays back the gross figure it is more than he was actually paid due to tax deducted. Does he have to pay back the gross figure and if soHow can he recoup the tax he paid?

Our Response:
He should claim back any tax overpayment via HMRC.
WorkRelationships - 24-Oct-17 @ 12:09 PM
I was promoted to a new role 3 years ago. At the time I requested a pay raise to cover the new role. Instead of the pay raise I was offered a bonus. I was never provided with a new contract despite asking. My new bonus was set up within my companies HR system and I was able print a copy of the bonus details. After 3 years my employer informed me that I should have never received the bonus and are recoving the bonus payments. They have increased my pay going forward to cover the promotion and have now given me a new contract. I would have never taken the role 3 years ago unless there was an additional incentive. Where do I stand legally on the recovery of the bonus by my employer.
Tommy - 23-Oct-17 @ 1:28 PM
My son was working for a contractor via an agency and was overpaid. The agency has asked for him to repay the gross sum he was overpaid plus vat. He is not vat regisitered and the agency have now wavered the vat as a goodwill gesture, although I can't see why he would be expected to pay back vat. If my son pays back the gross figure it is more than he was actually paid due to tax deducted. Does he have to pay back the gross figure and if so How can he recoup the tax he paid?
Jay - 21-Oct-17 @ 9:38 PM
A.jay - Your Question:
Hi People, I use to work for a security company until last month which use to give us paid holidays 28 a year. This year I have taken 12 so far which I got paid for this month. Now my employer paid me twice last month as they were taking there sweet time to pay me for some reason but I got paid twice. Now this month they came back to me asking for the overpaid wages with threatening to pay in 2 days or else they will go to Police and get legal team to be on it which I was not surprised of but Police was a bit too much. Now I have 2 questions Should I Reply them back with mentioning I believe I have a final wage to be paid which includes the remaining holiday pay ? Or Should I just go for obviously I can't pay that in 2 days what so ever. Best advice as to how I should tackle them would be nice. The amount is around 1200 which they overpaid but I will have similar amount if they adjust my holiday pay ?Thanks.

Our Response:
You can always ask that they deduct the amount from your final salary payment, which should be due soon? Most employers will agree to simply claw back overpayments over the course of few months, but they are not obliged to do so, and of course you're about to leave so that will not be practical.
WorkRelationships - 20-Oct-17 @ 3:32 PM
Hi People, I use to work for a security company until last month which use to give us paid holidays 28 a year. This year I have taken 12 so far which I got paid for this month. Now my employer paid me twice last month as they were taking there sweet time to pay me for some reason but I got paid twice. Now this month they came back to me asking for the overpaid wages with threatening to pay in 2 days or else they will go to Police and get legal team to be on it which I was not surprised of but Police was a bit too much. Now I have 2 questions Should I Reply them back with mentioning I believe I have a final wage to be paid which includes the remaining holiday pay ? Or Should I just go for obviously I can't pay that in 2 days what so ever. Best advice as to how I should tackle them would be nice. The amount is around 1200 which they overpaid but I will have similar amount if they adjust my holiday pay ? Thanks.
A.jay - 18-Oct-17 @ 6:52 PM
Hi my contract changed last October to where we should of had £40 deductions a month I left in my job in may and returned back to same employer in end of August they now want the overpayment back can they do this or can I refuse to pay it back.
Kitty - 16-Oct-17 @ 8:06 PM
sam - Your Question:
I had a three month notice and was working sprints two weeks in length. I asked to leave to take another job. I also asked if the 3 month notice could be reduced. They said leave after the next sprint finishes. I then got a bill for over payment. I was not aware that they would claim this. Do I have any rights? What about due consideration?

Our Response:
You should really have checked the details with your employer, or asked at least confirmed the pay details. It's not often that employers agree to waive a notice period without some kind of financial penalty.
WorkRelationships - 4-Oct-17 @ 2:06 PM
I had a three month notice and was working sprints two weeks in length.I asked to leave to take another job.I also asked if the 3 month notice could be reduced.They said leave after the next sprint finishes.I then got a bill for over payment.I was not aware that they would claim this.Do I have any rights?What about due consideration?
sam - 3-Oct-17 @ 2:05 PM
whyme? - Your Question:
Hi there, my employer has issued me with a variation to contract where they would like to reduce my salary, the initial salary is the one I accepted the job at and had it been lower I would have declined. I had already handed notice in to leave and taken a pay drop in order to take this role. When attending the meeting I was offered 2 options either sign or they would take legal action to recover the 'overpayment' this is not over paid but the salary stated on my contract, I have taken this salary for the last year, they are saying this is not in line with salary bands, this is not something I would have know or looked into but taken in faith this is what the role was offered at. please help.

Our Response:
It sounds like a breach of contract, we assume you have details of your contractual /job offer salary. Please see the guide to objecting to a change in your contract on our sister site SafeWorkers.co.uk
WorkRelationships - 29-Sep-17 @ 11:07 AM
Hi there, my employer has issued me with a variation to contract where they would like to reduce my salary, the initial salary is the one i accepted the job at and had it been lower i would have declined. I had already handed notice in to leave and taken a pay drop in order to take this role. When attending the meeting I was offered 2 options either sign or they would take legal action to recover the 'overpayment' this is not over paid but the salary stated on my contract, I have taken this salary for the last year, they are saying this is not in line with salary bands, this is not something I would have know or looked into but taken in faith this is what the role was offered at. please help.
whyme? - 27-Sep-17 @ 1:02 PM
Sav - Your Question:
I've questioned my employer about tax I had to pay on an overpayment. They said that it'll rectify itself next month because I wouldn't get taxed much as when they make the deduction it'll show up that I earned less. My question is, shouldn't they be claiming back the overpayment minus tax, as I was charged more tax because of their mistake?

Our Response:
Your tax will be calculated automatically to reflect this. If it's not done in your next month's salary, it may be rectified at year end and you'll be able to calculate it when your P60 is created and get it rectified then.
WorkRelationships - 9-Aug-17 @ 11:19 AM
I've questioned my employer about tax I had to pay on an overpayment. They said that it'll rectify itself next month because I wouldn't get taxed much as when they make the deduction it'll show up that I earned less. My question is, shouldn't they be claiming back the overpayment minus tax, as I was charged more tax because of their mistake?
Sav - 7-Aug-17 @ 3:13 PM
Polly79 - Your Question:
I have been overpaid for last two month and now came arrangement to repay over next several month. But amout they will take from me is what they overpaid me before tax and Ni. Is it my responsibility to reclame my tax and national insurance or is it my employer should do that?

Our Response:
Your employer should be able to arrangement to make the necessary adjustments to allow for this.
WorkRelationships - 3-Aug-17 @ 2:10 PM
Faulkon - Your Question:
I was overpaid (unknown to me) a bonus over a year ago. My employer has taken this pay over 4 months causing financial hardship (missed payments etc) They said they are entitled to take the money back how and whenever they like and this was a reasonable arrangement. I even made them aware this would mean I struggle to out food on the table for my children.Where do I stand?

Our Response:
There isn't much you can do about this unfortunately. Your employer seems to have been fair in taking it back over four months rather than in one go. The only way you could possibly dispute this would be if you were aware of the bonus and genuinely believed you'd earned it so spent it and your employer didn't inform you of it.
WorkRelationships - 2-Aug-17 @ 11:25 AM
I have been overpaid for last two month and now came arrangement to repay over next several month. But amout they will take from me is what they overpaid me before tax and Ni. Is it my responsibility to reclame my tax and national insurance or is it my employer should do that?
Polly79 - 1-Aug-17 @ 8:33 AM
I was overpaid (unknown to me) a bonus over a year ago. My employer has taken this pay over 4 months causing financial hardship (missed payments etc) They said they are entitled to take the money back how and whenever they like and this was a reasonable arrangement. I even made them aware this would mean i struggle to out food on the table for my children. Where do i stand?
Faulkon - 30-Jul-17 @ 6:40 AM
JohnSmith - Your Question:
I left my ex employer over 15 months ago, and have just starting receiving letters stating they have found various employees have had issues with their pay. If I was overpaid which im sure I havent been, can they still seek to reclaim anything after over a year without no other communication regarding the matter?

Our Response:
If you were not aware that you were overpaid it's unlikely that it can be recovered. However if it was clear that the amount was significantly different to that which you expected to earn then, your employer can still pursue it.
WorkRelationships - 27-Jul-17 @ 2:40 PM
I left my ex employer over 15 months ago, and have just starting receiving letters stating they have found various employees have had issues with their pay. If i was overpaid which im sure i havent been, can they still seek to reclaim anything after over a year without no other communication regarding the matter?
JohnSmith - 25-Jul-17 @ 8:18 AM
My daughter worked a a Christmas temp in Debenhams but because of their treatment of her she left after working about 41 hrs. She was paid just before she went travelling and before we moved to a different address. Last week she received a demand to pay back an overpayment of her wages and was given until next week to pay in full. My daughter called them today and she told them that she is currently not at work and is due to go to university in September. She offered to pay in installments but disputes the amount she has to pay back as the employer has recorded he hours as being much less than the hours she has actually worked. She informed them that she was never given a clocking in card and her last manager had also left the company. It would be a case of her word against theirs. They told her that it would now go to the solictors. Can someone please advise? thank you.
Ro - 5-Jul-17 @ 1:30 PM
Savvo1979 - Your Question:
A work colleague has been overpaid £7000, she was full time and then went part time and her wages dropped, years later they advised her she was overpaid for breaks that had been paid totalling £7000, because of the wage drop she thought she was being paid correctly. There is nothing at all on wage slips to advise how pay is calculated regarding breaks, she has agreed and has been paying it back monthly. Would she be able to sue the employer for bringing her into financial hardship as this was not picked up by the employer for a number of years, and as she is not a HR bod, how would she have known how to calculate the fact she had been overpaid for her breaks?

Our Response:
She should seek legal advice on this one especially if the employer cannot provide a breakdown of the wages etc.
WorkRelationships - 2-Sep-15 @ 2:09 PM
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