When leaving a job, it’s not uncommon for employees to experience payroll errors. Final pay miscalculation can cause a headache, particularly if you are overpaid by your employer after leaving.
In more rare situations, workers can find the company failed to take them off the payroll, meaning their salary continued to be paid. If this goes unnoticed, and the money has been spent it will cause a lot of anxiety.
If you’ve been overpaid by your employer after leaving, this guide will help you navigate this tricky situation.
We’ll explain your legal rights and the rights of your ex-employer, as well as what is likely to happen in some common scenarios.
What Happens if a Company Overpays You After You Leave?
Overpayments do happen from time to time after an employee has left employment. This can happen due to errors calculating your final pay, or issues with payroll accurately processing your leaving date.
If you’ve been overpaid, your former employer has the right to ask for repayment of monies due, even if the overpayment was not your fault.
Here are some common reasons why you may be asked to repay money after leaving a job:-
- The company forgot to take you off the payroll at the right time.
- Overpaid for holidays taken.
- Miscalculation of final pay.
- Training costs need to be repaid.
- Your hours were put in incorrectly.
- Maternity pay was overpaid.
- Repayment of a loan, such as for travel season tickets.
If you’ve been overpaid your former employer is legally entitled to recover monies from you, even if you’ve already left and you’ve been paid your wages..
What to Do if You’ve Been Overpaid
If you are in the unfortunate position of being overpaid, it is important to understand how to navigate the situation.
Even though your employer has the legal right to recoup overpaid monies, you will need to agree that the amount of the overpayment is accurate. As you will have paid tax on the overpayment, you also need to ensure your former employer has taken this into account.
Never accept an overpayment figure without first satisfying yourself it is correct. Your former employer should easily be able to prove what they are owed. Ask to see a full breakdown of the overpayment.
- Firstly, you must double check the amount your ex employer claims you owe. Never accept there is an issue until you have looked at the figures yourself.
- Check your contract. This is important for any claims of overpayment involving training costs or travel expenses. If you have not signed any agreement regarding repaying training costs, then your former employer cannot ask you to repay the money. 
- Ask your former employer to send you proof of overpayment, including a full breakdown of what is owed.
- Make sure that you are not being asked to repay a gross sum which includes tax and national insurance you have already paid to HMRC.
- If you cannot afford to repay the overpayment in one lump sum, you can set up a repayment plan with your old employer. This is sometimes referred to as a recovery payment.
- If you have agreed to repay an overpayment of wages, make sure you ask for a written statement stating how the monies will be repaid. Anything like this should also be signed by both parties.
- You can also seek free legal advice from the Citizens advice bureau which will be able to help you.
Source:  ACAS, Deductions for training costs.
The important thing to understand is that an employer has the right to claim back legitimate salary overpayments.
Related: Overpaid by work and not my fault.
Tax Implications of Overpayments
There are tax implications that both employer and employee should be aware of when staff are overpaid. Employers should only seek to recover overpayments after tax and national insurance have been deducted.
This means the amount the employer tries to claim back should be the net profit. It is a little more complicated once the employee has left but it is simpler if it is within the same tax year. Either way though, the employer will need to fill in a Full Payment Submission (FPS) to HMRC.
It might be necessary for the employee to be given a new P60 if one was already given before the mistake was identified. This P60 should be marked clearly with replacement so that the employee knows which is the correct one.
Refusing to Pay
It can be stressful to receive notice of an overpayment – even more so when it is through no fault of your own. You may be tempted to refuse to pay the monies they say are owed.
Unfortunately, refusal to pay can lead to your ex employer pursuing a legal claim against you which will mean being taken to court. If you do not defend the case, or have a ruling made against you – this can result in a CCJ being awarded against you. This can affect your credit history, so it is important to engage with your former employer.
An employee always has the right to defend themselves in such instances. Their views and arguments will be taken into consideration. However, without extenuating circumstances, they will likely lose the case.
Companies will be keen to avoid taking a former employee to court as it can prove a costly and time consuming process. They are often happy to meet the employee halfway by agreeing to a payment plan – particularly if the amount owed is significant.
If Your Former Company forgot to Take You Off the Payroll
What happens though if the company forgets to take you off the payroll? That’s hardly your fault so surely you can’t be forced to pay such monies back?
Even though there was such a big error on the company’s part, you would still be liable to pay this money back. After all, you no longer work there so how can you keep the money?
The bigger the overpayment, the more likely the case will end up in court. No court will believe you hadn’t noticed the mistake.
What to Do if You’ve Been Left on the Payroll
If you leave the company, you expect to get a P45 and final wage. If the wages keep coming in month after month, it should be clear HR has not removed you from their payroll.
Whilst this is their error, it is in your best interests to alert them as soon as possible. That way you can simply pay it back and ensure you are no longer on the system.
There are some things you can do if you find you are still on the payroll:
- Contact your former employer. Make sure you do this in writing, and ask them to remove you from the payroll.
- Put any overpaid money into a separate bank account, do not spend it under any circumstances.
- Some companies also keep employees on the payroll, whilst issuing payslips for a zero figure. This can affect the tax code of employees meaning they are paying more than they should.
- Should an informal chat not work, you can try writing a formal letter of complaint. This should succinctly outline the problem and that you need it to be resolved before the next paycheck.
- You can seek advice from citizen’s advice they may be able to inform you of the best way to go forward with this.
- You can contact HMRC directly and ask if there is anything they can do to advise. They will not be aware of the issue as they simply process the information they are given.
Finally, if you’re being overpaid after leaving do make sure you tackle the situation head on. Make sure your former employer proves any overpayment, and provides a settlement figure that takes the tax you’ve already paid on the money into account.