A recent case involving Glasgow City Council, raised the question – when wages are overpaid due to the Employer’s mistake, can they legally recover the money?
In this case, five employees were ordered to repay a combined total of £40,000 in wages that had been mistakenly overpaid due to a payroll error in calculating contractual overtime.
The Employment Rights Act 1996 (the Act)
Under the Act, the usual protections against unlawful deductions from wages do not apply when the deduction is made to recover a previous overpayment.
This means that if an employee has received more pay than they were entitled to due to a payroll error, employers are legally permitted to reclaim the overpaid amount. This is even if there is no specific clause in their contract allowing it, and even without the employee’s consent.
However, while the Act allows recovery, the process must still be handled carefully and fairly.
Our Advice
As soon as an overpayment is identified, we advise that employers should notify the employee in writing. This communication should set out:
- the nature of the error;
- the amount overpaid;
- how that figure was calculated; and
- how you propose to recover it.
If the overpayment is a substantial amount, we suggest proposing a reasonable repayment plan. For example, you should consider spreading the repayments over several pay periods to avoid causing financial difficulty for the employee. Ideally, this plan should be agreed with the employee, however consent from them is not strictly required.
When deductions are made, they need to be clearly itemised on the employee’s payslip, including the amount and the reason for the deduction. This will help ensure clarity and helps to avoid confusion or further complaints.
If you are an employer or employee affected by the above issue and want advice or support in connection with the same, or any employment law or HR issues more generally, please do not hesitate to contact us on 01206 239 761.
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