What Should You Do if You Accidentally Overpay an Employee?

If you have accidentally overpaid an employee, you probably have lots of questions going through your head, such as:

• Can I reclaim the money back?
• What if the employee is struggling financially?
• What if the employee is no longer with the company?

Accidentally overpaying an employee is probably more common than you might think. There are many reasons why you might have accidentally overpaid an employee – somebody in Payroll might have hit the wrong number on their keyboard, or somebody might have sent them the wrong information to begin with.

Either way, as soon as you spot it, you’ll want to put it right – but how?

There is no ‘one size fits all’ solution to accidentally overpaying an employee, because there are so many possible scenarios and finer details.

What does the law say about accidentally overpaying employees?

Let’s start with the absolute basics: If you have overpaid an employee by mistake, then yes, you are within your rights to claim that money back.

According to UK legislation, you will normally do this by deducting money from future wages until the amount is repaid. In section 14 of the Employment Rights Act 1996, it says that an employer may make a deduction from a worker’s wages “where the purpose of the deduction is the reimbursement of the employer in respect of:

• (a) an overpayment of wages
• (b) an overpayment in respect of expenses incurred by the worker in carrying out his employment, made (for any reason) by the employer to the worker”

So that’s good news, at least! If you’ve accidentally slipped an extra tenner into an employee’s pay packet, you’re within your rights to simply pay that person £10 less the next time you pay them.

How to reclaim a simple overpayment from an employee’s next wage?

Here are the steps you should follow if you notice you’ve accidentally paid an employee too much:

• Contact the person you have overpaid immediately
• Explain what has happened
• Tell them that you intend to take the money out of their next wage
• Ask them if this would cause any financial difficulty
• If yes, try to arrange instalments that you are both happy with
• If no, make the appropriate deduction

It really is that simple – as long as you make sure you’re treating the employee fairly, you will rarely run into any issues.

How to handle more complex accidental payroll overpayments?

Normally, accidental overpayments are a simple one-off clerical error that can be easily handled. But sometimes, they are much more complex. Let’s take a look at some examples:

1. Regular overpayments across a long period of time 

For example, you have been accidentally overpaying an employee every month for the last 9 months.

So, what if you’ve been overpaying an employee regularly for a fairly long period of time? It gets more difficult. See, whereas one-off errors are normally fairly easy to rectify on the next pay date, larger sums of money present other challenges. For example, the employee may now owe you more than they earn per month – or they might even have adapted their personal life to reflect the higher income, and have more outgoings than they should have were they being paid the correct amount.

In a situation like this, you may find it helps to arrange a meeting with the employee in question, so that you can both discuss what has happened, and you can work out an arrangement together. You might find it helps to come to an agreement – such as reclaiming a small amount of the debt spread over several months (or even years) or depending on the circumstances, it might make things far easier if you just write off a chunk of the debt.

Try not to take the offensive – it is quite possible your employee had no idea they were being overpaid.

It is worth noting that if the employee feels that they were led to believe they were entitled to the extra money, and has become reliant on the extra wage over time as a result, then they may be able to defend any claim for repayment that you submit – especially if you are not dealing with the matter in a fair and reasonable manner. The sooner you bring the matter to your employee’s attention and the more cooperative you try to be with when working things out together, the better.

2. The employee has left your company

For example, during an audit, you notice an overpayment from 2 years ago, made to somebody who has since found another job.

This is another very tricky issue. What if you only notice the overpayment months or even years after it’s been made… and the employee is no longer working for you? You can’t simply make things right by deducting from their next wage, as they don’t have a wage any more. So how do you deal with this?

If the employee has only recently left your company, you might have just got away with it – if they’re still due a final wage, you can deduct the amount from this. Failing this, you must contact the employee and ask them to repay the money… which could be challenging.

• Your employee might not realise they were overpaid, so you’ll need proof
• You might not be able to contact your employee
• They might refuse to pay

If you have trouble getting the ex-employee to pay you back, you may wish to take the case to court. Some employers even have a clause in their contract that states they will treat any overpayment as a civil debt if the employee has left the company, which makes reclaiming that money easier.

In all honesty, unless the amount of money you’ve overpaid an employee is a considerable amount, and it is going to cause financial issues for your business, then I would advise simply striking it down to experience.

After all, do you really want to be that employer who took their old cleaner to court for £100? Not only is it bad for your image, but it could cause distress to your ex-employee, and it could end up costing you even more than you’re owed if they successfully defend the claim.

In other words, it is possible to claim back accidental overpayments from a long time ago, but it’s tricky, and probably not usually worth your while. Don’t you agree?

How to avoid accidentally overpaying employees?

Did you know that a huge number of payroll errors are caused by basic human error? For example, that time in 2013 when 8,500 NHS staff didn’t get paid? There’s one way to reduce mistakes in the HR and payroll departments – and that’s by implementing modern payroll software, and HR software, to automate most of the processes that would normally be the most affected by human error. Now, please don’t think that I’m trying to suggest you replace all your HR and Payroll staff with robots – this is not about using technology to outclass the value of people, but rather, it is about using technology to support people in doing their jobs better.

Instead of manually emailing Payroll whenever an employee gets a pay rise, your HR software could generate an automatic notification on your behalf – that’s one less manual step that could result in human error, and that’s 5 more minutes you could spend preparing your quarterly presentation on staff turnover.

It’s also important to conduct regular audits, and you could also advise your staff to notify you if they spot an overpayment – you could even offer a bounty for their honesty (such as a 5% bonus up to a maximum of however much they were overpaid).

Ready to answer another tricky question?

It is surprising how many employers don’t actually know how long they should be keeping employee records for. And even if you knew once upon a time, certain things have changed since the launch of GDPR (General Data Protection Regulations). This is how long you should keep employee records for.