Debt Recovery team highlight: Overpaid wages to employees

Clarke Willmott’s specialist Debt Recovery team discusses overpaid wages to employees.

Overpaid wages to employees can happen for a variety of reasons, from a simple accounting error to failing to ‘click’ a button at the end of a temporary promotion. It is important for an employer to recover the overpaid wages from the employee in a legal and ethical manner.

The first consideration on discovering that an employee has been overpaid, is to have an investigation into the reason behind the overpayment. You need to check if this is an isolated incident and not a wider payroll issue which impacts more of the workforce. If you discover that there is a larger problem, it is worth seeking professional advice to come up with an appropriate strategy for addressing all staff members before approaching the affected employees.

For a single member of staff, the recommended course is to engage with the employee. If suitable, explain the reason for the mistake to the employee. They should be provided with a written breakdown of the overpaid amount and a suggested a repayment plan. The employee should be given an opportunity to consider the overpayment information and respond or contest the overpayment.

How the employee is engaged is up to the employer, but direct face to face communication tends to be more constructive than sending the employee a surprise letter.

If the employee agrees to repay the overpaid wages, then any agreed repayment plan must be put in writing (this is not strictly required if the employee has since left the business, but it is still good practice.) It may be that the employee is offering a lump sum payment; payment by instalments, or deductions from future wages. The written plan should clearly outline what is expected to be paid, when such payments are to be made and any deadline for full repayment.

When agreeing a repayment plan, it is important to ensure that any repayment plan is fair and does not cause financial hardship. Employers should also consider their responsibilities under legislation, especially the National Minimum Wage requirements.

If the employee disputes the overpayment, the employer needs to take the same seriously. If the employer needs to take formal legal action later down the line, it can be important to show that they engaged with the employee throughout.

We also review what the employee may have signed in the Contract of Employment or any statutory provision to reclaim.

Another option could be, depending on your position to offer the employee a “without prejudice” (i.e. cannot be disclosed in court) settlement agreement which offers the employee a discount on the full overpayment balance. The employer should remember that the settlement of disputes involving lawyers and the courts / tribunals will be expensive. Offering a discount incentivises the employee who should see it as a win, whilst being quicker and long-term cheaper solution for the employer.

You may want to consider approaching an employment specialist to guide you on the best course of action.

If the employee fails to engage or outright refuses to the pay the debt, then it is open to the employer to take legal action to recover the debt. For overpayments under £10,000, the employer can use Money Claims Online, a service which has been designed to be a relatively simple way to commence a County Court claim.

For higher amounts, or where it is known that the claim will be defended, it is strongly recommended the employer seek legal advice.

Assuming the claim is successful, and a Judgment obtained against the employee, this can be enforced several different ways.

For example:

• it may be appropriate to seek an attachment to earnings if the employee has changed jobs;
• having a High Court Enforcement Officer knock on their front door can be the wake-up call required when a party has failed to engage; or
• if amount of the overpayment/judgment is substantial, obtaining a security over the employee’s house can ensure repayment will be made.

Choosing the right form of enforcement can be a difficult decision, so the employer may wish to engage the services of recovery specialists.