Recovering salary overpayments due to payroll errors
Five employees at Glasgow City Council have together been ordered to pay back £40,000 in overpaid wages caused by a payroll error relating to the calculation of their contractual overtime. If you overpay wages to an existing employee due to a payroll error, can you recover them?
Where the purpose of a deduction from an employee’s wages is to reimburse you in respect of a previous mistaken overpayment of wages, the unlawful deductions from wages regime in the Employment Rights Act 1996 doesn’t apply. This means you can lawfully recover the overpayment by making deductions from the employee’s future wage payments, even if there’s no contractual clause allowing it, and you don’t need their consent.
In this situation, you should notify the employee as soon as possible of the overpayment. Explain the error in writing, give details of the overpayment and how it has been calculated and then set out how you propose to recover it, i.e. by deducting sums from their wages. If the amount of the overpayment is large, it’s advisable to propose a reasonable repayment plan under which wage deductions are phased over several pay periods, rather than just deducting it all at once, to avoid causing financial hardship for the employee. Aim to agree this repayment plan with the employee.
When you then make the relevant wage deductions, itemise these clearly on payslips - include the amounts of, and reasons for, the deductions.
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