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FAQ: The Legalities of Salary Overpayments

By: Garry Crystal - Updated: 11 Sep 2019 | 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 have had a letter today asking for repayment of around £2000 foroverpayment back in feb-March 2017! I was told at the time it would be put down as leave. I can not afford to repay this amount what can I do?
Wookie - 3-Aug-19 @ 1:34 PM
My wife was overpaid by an employer, who has admitted they knew when they keyed the leaver form that the final salary would be wrong. However then took 6 weeks to advise her of their mistake. I think there should be a legally binding timescale by which employers have advise employees of a mispayment. I would say one pay period (4 weeks) would be sufficient, as payrolls need to be balanced and signed-off each pay period. If they do not do it in this timescale the maximum amount an employee has to repay will reduce by 10% per week. Meaning the onus is on payroll to spot and advise of errors quickly. In light of payrolls prime responsibility to pay accurately and on time, they should be accountable for these errors. An employees job is not to mark payrolls work for them.
KevinH - 26-Jul-19 @ 12:29 PM
I was recently informed by my manager that I have been getting overpaid 8 of the 10 months I have been working (First month I was underpaid, second month I was overpaid so I thought it evened out). Since then I received about £500 more then I should have plus any overtime for 8 months. I got the same amount every month so while it didnt match what the job description said it was meant to be less, this was the normal and had never been different since I started. I'm not sure if my manager is looking for me to pay it back but it's a serious problem if In required to as my closest estimate I have for the amount I'll need to pay is £4000-£6500. I'm only employed full time with them until mid September and then I'm starting University, so not only am I going to have payments I need to make for Uni, I'm also going to be working half the time I am now and it will take years to pay back unless I work for free for the majority of a year. I fail to see how this went unnoticed for so long especially since the reason I got overpaid so much was because the hours I was showed by my manager stated I had worked more then 7 days a week and I would work overtime from time to time so my hours should have been changed. Do I have any means of fighting this?
Tom - 11-Jul-19 @ 12:17 PM
I have a serious disability which led me to be off sick for a lengthy period of time. It soon became apparent that I would never be able to work again after being with the company for 28 years and my illness progression . I notified my manager from day 1 of my sickness and when visited at home in March 2018 I advised them and my union representative that I would volunteer for Ill health retirement. From day one I have provided sick notes to my manager every time they were due. I finally got my retirement in February 2019. My wages ended in August 2018 and I was at that time notified that I had been overpaid as they claimed that they had not been notified until then that I was even off sick. I have today been informed that I owe them £8,889 I am mortified! I just assumed that because they knew that I was going for early retirement and had been in receipt of all of my sick notes that I would just continue to be paid. Please advise
Debbie - 8-Jul-19 @ 1:55 PM
I have been overpaid at work for overtime because my line manager hasn't zeroed the overtime from last month, so I have been overpaid by around £2000 .can I just keep quiet and hope it will go unnoticed or should I inform my line manager? The company I work for has around 100,000 employees worldwide & around 1000 where I am based.
Si - 26-Jun-19 @ 1:11 PM
i work in a filling station with a small team of people who for the last 3 years thought we were getting paid double time for working bank holidays. At the end of each year we were all told that we owed the employer quite a few hours mostly about 30as we had been overpaid on our holidays. we all only booked holidays that we were entitled to and couldnt understand why we all owed so much. however we found out that our employer had stopped paying double time for bank holidays which was causing all the problems. why did they keep paying us holiday money if our entitlement included bank holidays. why would we claim double pay if we knew we had to pay it back at the end of the year and why didnt he just say or give it to us in writing that we were no longer getting double pay rate. does anyone know where we stand
chloz - 21-May-19 @ 3:59 PM
I handed my notice in to my previous employer in December 2018. I was paid in December as normal and received pay in January. I questioned the payment with a supervisor and was told this was my final pay. I then received payment in February and immediately informed my area manager for the payment to be recalled. I did not receive payment in March and thought the matter was closed. I have today received a letter informing me that Decembers pay was incorrect and that January and February also need to be repaid. My area leader had not informed the correct reporting line. What are my rights?
Gill - 3-May-19 @ 1:19 PM
I have received a letter from a previous employer stating I was overpaid. I handed my notice in December 2017. I was paid in January and bought it to the attention of my supervisor who said it was my final pay. I then was paid in February and on the date of payment informed my area manager and asked for the payment to be recalled. This didn’t happen. I did not receive payment in March so thought the matter was closed. It’s now May and I have been informed that part of December pay, January and February needs to be paid back. Do I have any rights?
Gill - 3-May-19 @ 1:12 PM
I work part time and think I am being paid the full salary instead of pro rata. I was on Mat leave before I started this role so was told I was on cumulative pay hence why I was getting more. It's been 7 months now an still getting paid what I think is a full time wage but they are still saying it's correct! What can I do? Will I have to pay back the money I have already been paid if they say a year down the road that it's wrong?
Chel - 24-Mar-19 @ 9:58 PM
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
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 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
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
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
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