Overpaying wages can happen for all sorts of reasons, from data entry errors, to confusing overtime or holiday pay arrangements. For the person on the receiving end, an accidental overpayment might feel like a lucky windfall, but the reality is that it’s highly unlikely you can simply keep the money! Employers do have the legal right to recover money which has been mistakenly overpaid.
Employers tend to send out payslips before they pay you so that any errors are spotted and corrected in advance. If you notice anything unusual in your payslip, it’s better to notify your employer as soon as possible.
In these days of automatic transfers it’s rare for the money hitting your bank account to be different to your payslip, but it’s always a good idea to check the two amounts match, just in case.
Again, if this does happen, let your employer know. The quicker you get that back to them, the less stress for you. Of course, you might not notice a mistake until your employer writes to you asking for the money back. They’re well within their rights to do so, even if you don’t work there anymore.
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If you overpay an employee
Making a mistake with someone’s pay is never ideal, especially if you don’t notice for a few months and it builds up.
As an employer you’re legally entitled to recover accidental overpayments by deducting it from future payrolls.
As you might imagine, a tactful and sympathetic approach to recovering the money is highly advisable. You should write to your employee to let them know, and confirm the amount they must repay. It’s essential that you put this in writing, even if they were the ones to point out the mistake.
Whilst you can make deductions from subsequent pay, being flexible means you’re more likely to recover the money without damaging your relationship. Be open to negotiating the repayment schedule, too.
Recovering overpaid wages from someone who has left
You might not discover an overpayment until after the employee has already left, which can make recovering the money more problematic. In some cases the effort and cost of tracing that person might outweigh the actual amount you recover, for a start.
When deciding what action to take, consider how much time has passed, the amount overpaid, as well as the circumstances in which they left – they’re all factors which might influence you.
What if we can’t agree a repayment schedule?
Employer don’t actually need the employee’s permission to deduct money from someone’s pay if it’s to recover an accidental overpayment of wages, though it’s definitely nicer all round to do it amicably.
Employees have the option of raising a grievance if they feel they’re being treated unfairly, or even taking legal action. Likewise, a former employer can use the civil courts to make a legal claim against a former employee for accidental pay.
Do I need to tell HMRC about accidental payroll overpayments?
As an employer you’ll report the details of each employee’s wages every time you pay them, including information about any deductions you make. You’ll need to update this information if you recover overpayments through payroll, so that your employees’ tax data can be corrected.