Payroll errors frequently occur no matter how careful you or your agents are. Where this happens you need to be aware of the law in this area as you cannot simply deduct the overpayment on your next payroll run as this may be unlawful.
The recovery of overpayments to an employee need to comply with the rules set out under the Employment Rights Act 1996. Generally, a deduction can only be made where:
- It is permitted by law e.g., for tax reasons or where there is an attachment earnings order from a Court.
- It is provided for in the employment contract or another contractual agreement between the parties.
- The employee has agreed to it in writing before the deduction is made.
However, an employer is also able to recover an accidental overpayment where it has been made due to a “mistake of fact” for e.g., a calculation error. Accidental overpayments can also be automatically recovered from future payments that need to be made to the employee although it is also good practice to inform the employee about the error and your plans to recover it.
In all situations, unless the overpayment is for a minor amount, you should permit the employee to reimburse you by instalments as there is a good chance they may not have picked up on the error and spent the extra money. You also need to be aware that if you mishandle the situation you could be at risk of the employee raising a formal grievance which may lead to them resigning and bringing a tribunal claim against your business for constructive unfair dismissal.
Exception to the Rule
Where there is an overpayment due to a mistake in the law, you can only make a deduction from a future salary payment if there’s an express right in their employment contract or they gave you written permission to make the deduction. You cannot rely on their verbal permission, it must be in writing.
For advice or further information on how to recover employee overpayments call Henry Doswell of Doswell Law Solicitors on 01233 722942. Alternatively, email Henry at firstname.lastname@example.org
Disclaimer: Whilst every reasonable effort is made to make the information and commentary contained in this blog accurate and up to date, Henry Doswell takes no responsibility for its accuracy and correctness, or for any consequences of relying on it. The information and commentary in this blog does not constitute legal advice to any person on a specific case or matter. You are strongly advised to obtain specific, personal advice from a lawyer about your case or matter.