Question
We have recently discovered that an employee has been overpaid. The employee reduced their hours from 35 to 28 and signed a new contract to that effect. However, the change was not effected by our payroll and for two months the employee was paid a full-time salary. Are we able to recover this overpayment?
Answer
It may be possible to recover this overpayment, but there are a couple of issues to consider. While employees have the statutory right not to have deductions made from their wages, this right does not apply where the employer makes the deduction to correct an overpayment of wages. Therefore, in general terms, your organisation is unlikely to face a successful unlawful deduction from wages claim in the event that a deduction is made from the employee’s next salary payment.
However, making deductions is a matter of contract as well as statute. In other words, while an unlawful deduction claim may be unlikely, if the contract does not allow deductions to be made then you may be in breach of it by making one. In turn, breaching the contract may also open up the possibility of the employee resigning and claiming constructive unfair dismissal, depending on their length of service.
Many contracts will contain a clause related to deductions from wages that allow employers to recover monies from employees in similar circumstances. If the employee in question has such a clause in their contract then the risk of recovering the overpayment is likely to be lower.
If not, a safer option may be to sit down with the employee, explain the mistake and ask them to agree to the repayment. If the employee signs a document agreeing to the deduction it is unlikely that they could bring claims against you for any deductions made. Obtaining agreement is key and so a ‘softly-softly’ approach is likely to be best.
In addition, regardless of whether you have the contractual right to make deductions, if there is a great deal of money to be deducted it is good practice to discuss the idea of a repayment plan to recover the money over a few instalments. This may also reduce the risk of adversely affecting the organisation’s relationship with the employee.
Please note that the above is based on the premise that the employee has been paid more than what it states in their contract. A situation whereby an employee should have been given a contract for (as an example) 28 hours, but was given a contract for 32 hours and has been paid for 32 hours, will not constitute an overpayment of wages. Recovery in those circumstances is likely to be more challenging, irrespective of any contractual right to make deductions.
If you have any questions on any of the issues raised in the above article, please contact Seanpaul McCahill.