When payroll errors are made they can go unnoticed, sometimes for extended periods. If you’ve discovered your employer has overpaid you, and intends to recoup the overpayment via wage deductions, you’ll be understandably anxious.
Even if it’s not your fault your employer overpaid your wages, they have the right to be repaid. However, companies must not act unreasonably or without notice. Employees still have legal protections in this situation.
This guide will give an overview of your rights after your employer informs you of an overpayment.
The first thing to do after receiving notification from your employer of an overpayment is to remain calm. Understanding your rights versus the employer’s rights is essential.
About Unlawful Deduction of Wages
There are situations where an employer deducting money from wages can be unlawful, giving you the right to take further action to protect your personal finances.
Firstly, it’s important to understand the legal position and whether the repayments being proposed to you are an unlawful deduction of wages.
The Law on Recouping Salary Overpayments
Employers have the right to ask for wage overpayments to be paid back but they cannot do this unlawfully.
The Employment Rights Act of 1996 protects workers from unlawful deductions (section 13). However, section 14 of the same act gives employers the right to take deductions from an employee when there has been a mistake resulting in an overpayment.
Employers may further protect their finances by having a clause in the contract about overpayments.
Employers asking for an overpayment back from their employees does not count as an unlawful deduction of wages.
However, employers need to follow strict protocols when dealing with this scenario. Notice must be given and a payment plan drawn up if the amount is significant or the employee will struggle to pay it in one lump sum.
Can My Employer Deduct Money From My Wages Without My Consent?
What happens next then? You have been made aware of one or more overpayments. How will this be rectified? The employer must follow proper procedure when seeking repayment.
It is important to note that your employer does not have the right to simply realise the mistake and withhold money from your wages. It must be brought to your attention, usually in a formal manner. This may involve a letter or email citing the mistake and notice to claim the overpayment back.
The notice period should be reasonable and a payment plan should be offered if the mistake happened over a long period. It would be unreasonable to expect such payment to be returned in one lump sum.
Any recovery plan should be agreed upon by both parties and signed. If you are unable to agree with your employer, you can contact ACAS for free advice and suppport.
See Also: Underpaid at work, what are my rights?
National Minimum Wage Protections
Employers must be careful that employees’ wages never fall below the national minimum wage. However, this national minimum wage protection does not cover overpayments.
NMW protection does not cover the following scenarios:-
- Tax or National Insurance.
- Anything the employee becomes liable for as set out in the contract of employment.
- Repayments of any loans.
- An advance on wages.
- Accidental overpayments
- Accommodation is paid for by the employer.
- Pension contributions.
So although the national minimum wage is there to ensure everyone receives a fair wage, the protections do not cover overpayments. This means employees may receive less than the NMW when averaged out, until the overpayment is paid off.
Source: HMRC Ops Manual Guidance about overpayments and National Minimum Wage.
What to Do If Your Wage Has Been Overpaid
Ideally you should be keeping a close eye on your wages every week or month. Keep your own calculations so you can tally these with your payslips. This stops a mistake from becoming costly.
These things happen though and hindsight is a wonderful thing. Life gets busy, money comes in and usually goes out just as quickly. It is not uncommon for overpayment in wages to go unnoticed on both sides.
If you’ve been overpaid, it’s important that you understand what steps to take when discussing the issue with your employer.
Your Employee Rights
Money should never be deducted from wages without consulting with the employee first. You should get notice that an overpayment has occurred and be offered a reasonable time frame to repay the money.
Small amounts may be repaid quickly but larger amounts may need to be paid back in instalments.
Employees may prefer to pay it back via bank transfer as soon as the issue has been brought to their attention. However, in other cases, they may find it easier to have a set amount deducted from their wages until the full amount has been reclaimed.
Employees have the right to:-
- Ask for proof of the overpayments.
- Ask for a payment plan to be set up.
- Lodge a grievance if you feel the overpayment is incorrect.
- Check your employment contract about overpayments.
It is also important that you do not repay more than you should due to confusion about how much money you were overpaid. Tax and national insurance must be taken into consideration when agreeing the amount you repay.
Understanding if Overpayment of Wages is a Gross or Net Sum
The Employment Rights Act requires that an employee is provided an itemised statment regarding any overpayment. This should contain the gross salary, the amount of the deduction and why it’s being made, the net wages.
You should be provided with this by your employer, if they have not provided a breakdown of monies owed, you should request this.
Employees can only be asked to pay back the net amount after the tax and national insurance have been deducted. The rest should be deducted by HMRC using the Full Payment Submission (FPS).
Failing to be clear about the overpayment can lead to legal issues for the employer.
See Also: Overpaid After Leaving – Your rights when an ex employer gets final pay wrong, or fails to remove you from payroll.
Salary Overpayment Case Law – Ridge Vs HM Land Registry
A 2017 case involving a dispute between Mr Ridge and his employers, HM Land Registry, outlined the importance of following the correct protocols for asking employees to pay back overpayments.
Mr Ridge’s employers failed to notify him of a deduction on his payslip related to an overpayment of sick pay.
The Employment Appeals Tribunal (EAT) ruled that his employer had failed to explain the reason for the deduction on his payslip. Whilst the tribunal did rule the company had acted unlawfully, no compensation was awarded to the employee in the case.
This was because the reason for the salary deduction had been explained to him before he started proceedings.
Read more on the case at IMHRPlus.com
Salary Overpayment Recovery Time Limit
If your employer has overpaid you, and the money relates to several years ago or has been ongoing long term, you should be aware of the salary overpayment recovery time limit. This is set at 6 years which means overpayments noticed after this period should be waived.
This 6 year time limit was made law by the Limitation Act of 1980. In the event of a historical overpayment being discovered, employers can only seek to recover this for 6 years from when the overpayment happened.
If an employee is asked to pay back wages after 6 years have passed, they should refer their employer to the Limitation Act. If this fails, you can seek legal advice and seek to have your liability for these monies cleared.
Asking Your Employer to Write Off an Overpayment
The old saying “if you don’t ask you don’t get”, springs to mind here. There is no harm in asking if your employer will consider writing the overpayment off.
It was their mistake, after all and you are not at fault. Perhaps they will be willing to forget it. This is more likely to be granted if the overpayment is for a low amount. Sometimes, these mistakes happen to new employees who are put on the wrong hourly rate.
Although it is the legal right of the employer to claim back overpayments, they often won’t. It was their mistake and it is put down as one of life’s lessons. Sometimes it is more important to consider the working relationship. Causing friction is not good for any aspect of a business.
When the amount is significant, however, writing it off may not be financially viable. However, all communications should remain amicable and reasonable. Both parties should be happy with the agreed recovery plan.