Even the best workplace systems break down sometimes. Employees can, on occasion, end up being overpaid. This might be due to a system error, a miscommunication with payroll or a misunderstanding about whether an employee was off sick or not.
Once an overpayment has been spotted, the employer needs to know its options in terms of recovery. Here is what employers need to know in this area:
The law allows you to recover an overpayment from future pay
If the employee remains in employment, then the Employment Rights Act 1996 specifically allows the employer to recoup the overpayment from later pay packets. This is the case even if the overpayment was the employer’s mistake. There is no legal limit on the amount which can be recovered in each pay period. Employers are allowed to reduce the employee’s pay below National Minimum Wage if necessary.
Repayment plans should be reasonable to avoid constructive dismissal risk
Although there is no legal limit on what can be deducted each pay period to recoup and overpayment, from an employee relations perspective, employers should consider taking back the overpayment in instalments across a few pay periods. The employee, after all, may not have known that the overpayment was in error and might already have changed their position on the back of it.
Employers who do not take a considered approach risk the employee resigning and claiming constructive unfair dismissal on the basis that the employer’s insensitive handling of the repayment breached the implied term of mutual trust and confidence.
What to do if the employee has left employment
If an overpayment is discovered after an employee has left employment, then it is a lot more difficult to recover any sum due. You have no pay to recover the overpayment from. However, the overpayment still forms a debt owed to the employer. Write to the employee and explain the overpayment, providing evidence as appropriate. Suggest a scheme for agreed repayment of the sum owed. If the employee does not agree to repay then the employer may just decide to leave the matter at that. However, if the sum is substantial or the employer wants to take a clear stand, then they could bring a county court claim for debt recovery. This would involve fixed costs being payable. Employers should seriously consider whether the employee would have the funds to meet the judgment debt if this course of action was pursued.
For further information, please contact Kerry Curd in the employment team on 01626 202406 or email KerryCurd@wbw.co.uk.
WBW Solicitors has offices in Axminster, Bovey Tracey, Brixham, Exeter, Exmouth, Honiton, Launceston, Newton Abbot, Paignton, Seaton, Sidmouth, and Torquay.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
