How to deal with overpayments made to employees

Author: Claire Birkinshaw

Summary

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• Be aware that, in businesses operating computerised payroll systems, it is not unusual for an occasional error to result in an overpayment to an employee.
• Remember that employers are not prevented from recovering accidental overpayments by making deductions from future wages.
• Where you discover an overpayment some time after it was made, or the amount overpaid is significant, consider trying to agree a programme of repayment with the employee.
• Take into account the need to act reasonably when making deductions from future wages over a period of time.
• Be aware that, although employers are entitled at common law to deduct overpayments, the employee may bring a civil claim arguing that it is inequitable for the employer to recover the money.
• Be aware that, if the overpayment is significant, or the individual is no longer in your employ, you may be obliged to issue civil proceedings for restitution in the county court if they refuse to pay the outstanding amount on a voluntary basis.
• Consider each case on its facts, and take into account that it might sometimes be more practical to consider writing off part of an overpayment.
• Be aware that the employee may be able to rely on the defences of estoppel by representation or "change of position".
• Remember that the essential question is whether or not the overpaid employee's position has changed to the extent that the injustice of requiring them to make restitution is greater than the injustice to you, the employer, of not ordering restitution.