Overpayments can be reasonably common in businesses operating computerised payroll systems, particularly when it comes to bonus payments or overtime. Whether the company is legally entitled to recover the overpayment is a question often asked.
Essentially, in order to hold onto the overpayment, the employee has to show three things:
- That the overpayment was the business’s fault and not the fault of the employee.
- That the employee had reasonably assumed that they were not being overpaid.
- That as a consequence of the overpayment, the employee has suffered financial disadvantage (generally meaning that the money has now been spent).
It would be unusual to be able to meet all three criteria, mainly because employees are rarely given increases in pay without having been told about it first, so the second test is particularly hard to meet.
It’s essential that the business’s policy in relation to overpayments is stated in the contract and employee handbook, placing the onus on the employee to report overpayments to their manager immediately. Generally speaking, a fair way to deal with the situation is to discuss it with the employee and, wherever possible, agree a structure whereby the overpayment can be repaid, either from the next pay packet or in instalments over an agreed period of time where a one-off payment would not be feasible.
Need our help with your HR issues?
Whatever the question, whether it’s on overpayments, the Economic Recovery Plan, or updating employment contracts, we can help.
For expert advice on any HR issue, speak with one of our advisors today on 0818 923 923
