Deductions from wages for overpaid staff

I have overpaid my staff. Can I recover this money from their wages?

The law provides protection for employees against unlawful deductions from their wages, and if you make an unlawful deduction you may find that the employee has a good basis for claim in the Employment Tribunal.

The protection from unlawful deductions from wages is covered by section 13 of the Employment Rights Act 1996 which prevents employers making deductions unless they are:

  • required/authorised by law, i.e. tax and National Insurance deductions;
  • permitted by a provision within the employees employment contract, or
  • where prior consent has been received from the employee, i.e. a deduction for an advance of wages.

Wages are defined as any sums payable in connection with the employee’s employment including any fee, bonus, commission, holiday pay or other payment linked to their employment, whether payable under the employment contract or otherwise. The majority of payments you make to employees will be covered by this definition of ‘wages’.

Image courtesy of graur razvan ionut/ FreeDigitalPhotos.net
Image courtesy of graur razvan ionut/ FreeDigitalPhotos.net

Recovery of overpayments of wages

Overpayments can arise because of genuine payroll errors or miscalculations of wages, bonus’, or commission.

If there is an express provision within your employment contracts with the employees then you can rely upon this clause to recoup money paid in error.

If, however there is no express provision within your contracts you would have to rely on an exemption to unlawful deductions from wages within Section 14 of the Employment Rights Act 1996. This allows deductions to be made where there has been an overpayment of wages, thus enabling you to correct any errors in your payroll process.

Other issues to consider

Whilst the law imposes no limit in respect of the amount that is to be deducted from any single payment of wages, if you recover too much, too soon, it could lead to difficulties for you, particularly if the sum of money is a significant amount.

It is understandable that you would want to recoup the money overpaid as quickly as possible, but you have a duty of trust and confidence to your employees, and therefore you should ensure that you take the following steps:

1)      Acknowledge the mistake;

2)      Give the employee notice of the amount to be recovered & how you intend to recover it;

3)      If the amount is significant consider instalments;

4)      If the employee asks for it to be taken in instalments because it would cause financial hardship you should, as far as it is reasonable, agree;

5)     Ensure that the employee is still able to meet their financial commitments such as rent/mortgage payments.

If you fail to follow these steps the employee could argue that you have beached your contract with them and resign and pursue a claim for constructive unfair dismissal.

It is also advisable to try to work with the employee to recover the money in order to keep good relations with staff and ensure that their morale and productivity remain high.

Proceed with caution

You should note that any unlawful attempt to recover funds will prevent you from taking lawful steps to recover later on.

 

If you would like to discuss this issue please do not hesitate to contact me on 023 8098 02006 or 01983 897003.

 

This blog post is a summary of the law at the time that it is written and has been produced for the purposes of information only. It should not be substituted for obtaining legal advice that is specific to your particular circumstances. Employment law changes frequently and the law may have changed since this was written. It is important to ensure that you have up to date advice.

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