What is an overpayment of wages?
An overpayment is a payment made to an employee in which they were not entitled to. A payroll or other administrative banking error is a common example of where this might happen. Wages include the remuneration for the work the employee has carried out, commission, bonuses as well as maternity pay.
Check the contract of employment
A well drafted contract of employment will contain an expressed provision where your employee agrees for you to make deductions from their wages in order to recover an overpayment of wages (and often for other specific things). This clause in the contract can be relied on where the employee is and continues to be an employee of the business.
If there is no express provision in the contract allowing you to recover the overpayment then unless you are seeking to recover the overpayment by way of a deduction from future wages, any attempt to recover a sum could potentially be in breach of contract. This is explored further in detail below.
The employee’s potential for a defence
Your employee may have a defence on the basis that their position has changed, they have become reliant on the money which has been spent and that it would be unfair to require them to make a repayment. There are however certain conditions which need to be satisfied for the employee to be able to successfully rely on this defence.
Unlawful deduction from wages
Briefly touched on above, it is unlawful to make a deduction from an employee’s wages unless the employee has provided written consent, or the deduction is authorised by law.
Where the deduction is solely for the purposes of reclaiming an overpayment of wages, section 14(1) of the Employment Rights Act permits this deduction as one that is lawful.
So, if you find that you have accidentally overpaid an employee in wages, in the absence of a clause in their contract (or in addition to) you can rely on section 14 to recover the overpayment by making a deduction from future wages.
Tips and points for consideration
Review your employment contracts to see if they contain a provision permitting you to make deductions from the employees’ wages. If there is no express provision, you might want to ensure that going forward there is a clause in the contract permitting you to make deductions should the need arise. This might be beneficial for any new employees you take on. Having an employee’s consent at the outset of their employment with you is always helpful and could potentially lessen the shock if you later have to inform them that there has been an overpayment which you will need to recover.
If and when you realise there has been an overpayment of wages, we suggest that the first thing you do is sit down with your employee and discuss what has happened. Engage in an open and honest conversation with your employee and discuss with them and agree a repayment plan taking into consideration the amount owed and their financial responsibilities.
Taking an arguably unreasonable and brash approach could lead to a breach of implied trust and confidence between you and your employee which may consequentially lead them to resign and claim constructive unfair dismissal.