Can my employer recover an overpayment of wages from my next/future wages?

(UK relevant – Query an overpayment immediately. No employment protection against employer recovery. Issues if suing employer for recovery. Procedures if still in the employment. Procedures after leaving the employment)

If you have more money in your wages than you are expecting, don’t be tempted to keep quiet about it. As soon as your employer realises that an error has been made, you will be asked to repay the money and, in general, your employer is entitled to take it back from your next wages. It is better to query the overpayment immediately and come to an arrangement to repay the money rather than find yourself in legal difficulties in the future, with the presumption that you were being dishonest because you said nothing.

So, contact your payroll office and ask them to confirm whether or not the pay is correct. If they confirm that the payment is correct, they are unlikely to be able to recover the money if they later discover that it is not correct.

What is your employer’s legal position on discovering that you have been overpaid? Can the overpayment simply be recovered from your next wages? The “protection of wages” rules in the Employment Rights Act 1996 provide clear rules about making deductions from wages. In general, deductions may only be made from wages if the law permits it, or if your contract of employment specifically permits it, or if you and your employer have made a written agreement that permits it. See the FAQ Can my employer deduct money from my wages?

However, the important point to understand is that the protection offered by the Act does not extend to an overpayment of wages or expenses. An overpayment is specifically excluded from protection. This means that, if your employer recovers the overpayment from your later wages, you cannot complain to an employment tribunal that your employer has made an unlawful deduction.

You could, however, sue your employer in a civil court, e.g. the small claims court. That would depend, of course, on whether you thought it was unfair and unreasonable for your employer to recover the overpayment. And that is the issue that your employer has to consider before recovering an overpayment by deducting it from your wages – is it reasonable in all the circumstances to make the recovery?

What factors would a civil court take into consideration if you were to sue your employer for an amount of money deducted from your wages?

  • In the employer’s favour is the principle of “unjust enrichment” – a general view taken by courts that a person should not benefit from another’s mistake.
  • In the employee’s favour is the principle of “change of position” – that the employee’s circumstances do not make it reasonable for the money to be recovered, for example, because you were told on querying the payment that it was correct, or you spent or committed the money in the valid belief that you were entitled to it.

But don’t think that, just because you’ve spent the money, that makes it unreasonable for the employer to recover it.

If you are still in the employment where the overpayment occurred

On discovering an overpayment, a good employer should immediately contact you, explain the problem and tell you that the money will be deducted from your next wages. But you should expect your employer to check with you that, by doing so, you will not find yourself in financial difficulties. If a full recovery would cause you problems, your employer may suggest recovering the overpayment in instalments, or taking the full amount of the overpayment and giving you a short-term loan that you would then pay off in instalments.

However, if you still feel that it is entirely unreasonable for the recovery to be made from your wages, you should make use of your employer’s grievance procedure. If you raise the grievance before the recovery is made, the employer should wait until the grievance is resolved. If your employer goes ahead with the recovery, you may be able to take your employer to court, but not before following each stage of the grievance procedure precisely, including the appeal procedure if necessary. See the FAQ Can my employer deduct money from my wages?

To obtain advice on suing your employer in court, you should discuss the situation with a solicitor, or the Citizen’s Advice Bureau, or another local organisation providing advice on legal, employment or tax matters.

You must remember that, in the case of an overpayment of wages or expenses, you do not have any employment protection. Your employer is entitled to recover the money without your permission, but must do it in a fair and reasonable manner. If you were not entitled to the extra money in the first place, you and your employer should work together to correct the situation.

If you have left the employment where the overpayment occurred

In this situation, your former employer is unable to make a deduction from your wages. But what if, some months or years later, your former employer, or even a debt collector, contacts you claiming that you owe money that was overpayed in the former employment? Much will depend on what was stated in the employment contract. Some contracts state that, if an employee leaves the employment owing the employer money that could not be recovered from final wages, the amount owed becomes a civil debt. If there is no contractual provision to treat the alleged overpayment as a civil debt, the employer may have considerable difficulty in enforcing payment if you refuse to cooperate. In either situation, you should obtain advice from a solicitor, or the Citizen’s Advice Bureau, or another local organisation providing advice on legal, employment or tax matters.

More FAQs Related to Deductions from Wages
Can my employer deduct money from my wages?

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Payroll Update 2013