If you’ve accidentally overpaid an employee, don’t worry, it happens, and in most circumstances, you will be entitled to reclaim the overpaid amount. You’d be right to consider the employee and their financial situation, and depending on the size of the overpayment they may not be able to pay it all back straight away, or they may not be working for you anymore.
How would this effect an employee on NMW?
The laws around National Minimum Wages do permit an employer to make wage deductions in the circumstance of accidental overpayments, even if this leaves the employee actually receiving less than the National Minimum Wage. (To be clear, they would still be paid the National Minimum Wage, but after deductions would receive less).
Whoops, I’ve overpaid someone who’s left!
If you’ve realised that you have overpaid someone who has left the company, although you can’t recoup it through their wages, don’t panic. Firstly, is the amount worth pursuing? You may be able to contact them, if you do, you will need proof and an explanation. If they refuse to pay it back, you may wish to take the case to court. Consider the cost implications of this should they defend their claim successfully and consider the possible headache the process may cause to you.
If an employee thinks they were entitled to the money…
If an employee chose to claim that they were entitled to the overpaid money and the disagreement ended up going to Employment Tribunal, (unlikely if you’ve been compliant and have a clear paper trail) the employer would probably win if: the court felt the employee was trying to benefit from a mistake by the employer, or there was no proof that the amount overpaid was wrong.
It’s likely the employee would win if: the employee had contacted payroll about the overpayment and had been told that the amount was correct, (even if it turns out to be wrong later on). Or if the employee was somehow led to believe that they were genuinely entitled to the higher amount.
How to better avoid errors
Overpayment is more common than you might think, human error is usually to blame, and although mistakes are (mostly) easy to correct, there is a better way! Rather than add to the administrative load by having to fix mistakes, using payroll and HR software can help your business avoid them in the first place. By automating these processes, leaving paper trails is a no-brainer (which covers your back) and errors are less likely to occur.
To see how our HR software can help your business function more efficiently and keep you compliant and up to date with the law please click here >> or call us on 0333 4441065 and we’ll be happy to explain it all.