What to do when you’ve overpaid an employee

If you’ve accidentally overpaid an employee, don’t worry, it happens, and in most circumstances, you’ll be able to get the money back.

But can an employer take back overpaid salary from an individual’s wages, and what does the law say about employee rights when this happens?

It’s advisable to tread carefully in these situations, taking the employee’s financial situation into account and being considerate when asking them for a repayment.

Here’s what to do when you think you’ve overpaid an employee:

Have a conversation

As soon as you’re sure that you’ve overpaid an individual and you have conclusive proof, approach the employee and explain the situation. Take care not to take the offensive, as they may not have realised they’ve been overpaid.

Make clear to the individual how you’d like to recoup the money, and ask if their financial situation would be negatively affected. If they say yes, you may need to re-evaluate the repayment plan.

Agree a rate of repayment

According to the Employment Rights Act 1996, you can make a deduction from a worker’s wages “where the purpose of the deduction is the reimbursement of the employer in respect of (a) an overpayment of wages; or (b) an overpayment in respect of expenses incurred by the worker in carrying out his employment, made (for any reason) by the employer to the worker”.

This means that you can deduct the amount of overpaid money from the employee’s wages or salary. Depending on what you agree with the employee, this could be done all in one go, or if it’s a larger amount, it could be spread out across multiple pay checks.

Get written confirmation

It’s best practice to create a written summary of how much the employee will repay you, by what means and over what period of time. This will serve as a record of your joint agreement just in case the employee decides to seek legal action.

When you’ve overpaid an employee who has left

If you realise that you’ve overpaid an employee who has left the company, although it’s a little more tricky to recoup the money, don’t panic.

You won’t be able to recoup the amount through their wages since you’re not paying them anymore, but you can reach out to them and explain the situation. You’ll need evidence that they were overpaid, but the individual may still refuse to pay.

If this happens, you have the option to take them to court, but this would likely prove very time and cost-intensive for your business. Consider if the amount of money is worth recouping before you take any action. It’s a good idea to seek professional HR advice in this situation.

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