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It’s all too easily done. Your in-house payroll clerk handles far more than payroll, and it only takes a second’s distraction for someone to end up with an unexpected gift in their pay packet. But if you do overpay an employee, are you entitled to get the money back?

The simple answer is, generally, yes. The Employment Rights Act 1996 lays out specific circumstances in which you as an employer can make deductions from your employee’s wages, but overpayments are expressly excluded, leaving the employee with almost no legal protection against your attempting to recover the overpayment. That said, the timing of the recovery, and the way you go about it, can make life easier for you and your member of staff.


Your employee notices the overpayment; you don’t

Often the first time you’ll become aware of an overpayment is when the employee queries their wage with you. Unless the error is obvious there can be a temptation to bat the issue away, but take the time to check. Once you’ve confirmed a payment is correct you’re unlikely to be able to recover the money should you later spot a mistake.


You notice the overpayment

You are entitled to recoup the overpayment without permission (provided that recovery is reasonable – see below), and there’s nothing to stop you recouping the entire amount in one sum, but be aware that doing so may leave your employee in financial difficulty.


When you spot the overpayment, raise it with your employee and explain your plan to recoup the money from next month’s wage. Give the employee the opportunity to raise any objection, and ask them to tell you if taking the entire sum back in one payment would cause financial problems. If it would, consider agreeing an arrangement where the employee pays you back in instalments. It’s easier for the employee, potentially far less stressful you, and protects the employer/employee relationship.

The employee disputes the overpayment

It’s no defence for an employee to say they didn’t spot the overpayment, nor that they’ve already spent it, but your request for recovery must be reasonable. It would not, for example, be considered reasonable to have confirmed with the employee that the payment was correct, only to change your position later.


If the employee feels your position is unjust they can raise a grievance. If a grievance is raised you should not recover the money until it has been settled.


If the employee is unhappy with the outcome of the grievance they can take the matter to a civil court.


How do I stop an overpayment happening again?

Most overpayments occur because of human error, so the most effective way of reducing overpayments is to reduce the volume of payroll entries made in-house. Outsourcing your payroll gives you access to the latest payroll software and systems, and people who manage payroll and nothing else – so there’s far less chance of errors creeping in.


To discuss outsourcing your payroll, talk to us.