What can you do if you overpay your employees? What is the legal position? Can I get my money back?
If you are still employing the person in question then obviously you must consider recovering the overpayments from his/her earnings. Making deductions from wages is forbidden in many cases BUT deductions to recoup an overpayment is allowed. However, the employee can argue that you cannot recover the overpayment from him if:
- he was led to believe by his Employer that he was entitled to the extra cash
- has has ‘changed his position’ in good faith as a result of the overpayment (i.e. he’s spent it!) and
- the overpayment was not his fault.
Read our full article here
and you can read more about the deductions from employees’ pay that you are not allowed to do, here.
What if the employee no longer works for the employer who has overpaid them?
If the employee has now left the employer where the overpayment occurred, it’s obviously a slightly different situation as the former employer is unable to make a deduction from the employee’s wages.
Some contracts state that, if an employee still owes their employer money when they leave their employment that can’t be recovered from final wages, the amount owed becomes a civil debt. If there’s no contractual wording that says an alleged overpayment is a civil debt, the employer may have considerable difficulty in enforcing payment from the ex-employee if they refuse to cooperate.
Although overpayments for freelancers/sole traders may be unlikely, if you’re overpaid by a client, common sense says you should let the client know about the overpayment and make arrangements to repay this, to ensure you keep a good relationship with the client to secure future work.
Overpayments for freelancers can be made more complicated due to tax/VAT/accountancy requirements or implications.