Question
I accidently overpaid one of my workers last month by about 20%. Can I simply take it off this month's pay?
Answer
The short answer is that you can make the deduction from this month’s pay, as recovery of an overpayment of wages falls within an exception to the general rule that any deduction from wages must be with the prior written consent of the worker (or employee).
However, you should warn the worker about the overpayment and your intention to recover it so that the issue doesn’t escalate into a grievance. In any event, the worker’s contract might expressly state that you will not make deductions unless you have notified the worker beforehand.
If the overpayment is something other than wages, car allowance, sick pay etc. (e.g. expenses), unless there is a clear provision in the contract entitling you to make deductions from wages, if you try to recover the overpayment in this way, you would probably lose the right to recover it at all. If there is something in your contract allowing the deduction, you should inform the employee of the overpayment as soon as possible and of your intention to make the deduction this month. If the employee asks to spread the payment over a slightly longer period, it would be better to consider doing so, as the mistake was made by the company and the employee is being inconvenienced.
If the overpayment is for expenses or other non-wages items and the contract does not contain the right to make deductions from wages, you should ask the employee to sign a written consent that you can deduct from their wages. If they refuse to provide written consent, you can still pursue the matter, but it must not be as a deduction from wages. You should write to them, requiring them to remit the relevant sum, in instalments if this is practicable. If this is unsuccessful and you have given them due warning and a sensible repayment schedule, you could be confident of successful recovery of the debt in the small claims court, provided that they cannot reasonably argue that they could not have realised that they had been overpaid and have, in good faith, already spent the money. In the case of an employee, you might also be able to pursue a disciplinary misconduct case against them for failing to return the monies to the company as requested.
Deducting money from an employee’s salary can raise complicated legal issues. It is often wise to seek legal advice before doing so.
If you would like to know more, please contact Tony Hyams-Parish, Head of Employment, in confidence and without obligation by emailing Tony or by calling him on 08450 990045, or speak to your usual contact in the Employment Team.
This answer is provided for information only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this article.
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