a certain amount of payroll still involves manual processing each month to ensure that staff are paid on time and receive the correct amount. But mistakes happen from time to time and you may wind up overpaying an employee by accident. It’s important for businesses to understand why overpayment may happen and how they can claim the excess money back in order to prevent any legal issues or disputes with employees.
The Law and Overpayments
According to the Employment Rights Act 1996, businesses in the UK can deduct money from future wages until the amount overpaid has been recovered. The official legislation states that where the purpose of a deduction is the reimbursement of the employer with regards to an overpayment of wages or an overpayment in respect of expenses incurred by the employee, it’s permitted by law. Even with modern technology and software like the Cezanne HR system But it’s also worth checking the employment contract to see whether there’s a clause allowing for deductions from wages in the case of overpayment, as this will make the process of recovering the money more straightforward.
How Can You Recover Overpayments?
There are two ways to reclaim overpayments. The first option is for the employee to make a lump sum to repay the money they’ve received. Alternatively, they can make a series of installments until the full amount has been recovered – as an employer, you should provide advance warning to the employee and seek agreement before making deductions. The agreement should be made in writing and be signed by both parties, to protect everyone from legal action or disputes in the future. This agreement should explain the situation in full, explain the repayment process, discuss how the wage deductions will be recovered and ensure that the employee fully understands the implications of having these deductions made, so that they aren’t put in any financial difficulty.
What About Employees Who Have Left the Company?
Employers are still within their rights to ask for repayment if a person has been overpaid, whether they’re still working for the company or not. However, it is a less straightforward process compared to those who are still an employee. It’s important to act quickly if you’ve noticed an overpayment has been made, as if the final salary has not yet been made, you could reclaim the money from that amount.
If the final salary payment has been made, it’s much more problematic as the former employee can refuse your request for the figure to repaid. If they refuse, you can take things further with legal action, but the success of a court case will depend on the financial position of the former employee. Plus, the cost of legal action could end up being more than the amount you’re trying to reclaim. When deciding to take the situation further in terms of legal action, you will need to gather as much information as you can about the former employee, including their current employment status, so that you can build a strong case for them being about to afford to repay the amount owed to your company.
How to Prevent Accidental Employee Overpayments
Overpaying an employee is a common problem due to the mistakes in payroll, basic human error or even technical issues with banks. For example, a bank may have difficulties processing payments so you, as a company, make a direct payment instead to ensure that all of the staff receive their wages on time to adhere to their contracts. However, if the bank then processes the payments as usual, you may find that the employees have been overpaid for that month.
However, the most common issue is payroll errors so the easiest way to avoid this is to implement a modern payroll software that automates these tasks, minimising human error. Regular audits will also help to minimise errors, as will having open communication with staff that they should notify HR or payroll teams immediately if they’ve been overpaid. While this may be more difficult to implement, it will help to rectify the issue quickly if people are honest about what they’ve received in their wages. The company can even offer an incentive such as a small bonus for honest communication about overpayments, so that people are encouraged to speak up.
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