How an employer can reclaim overpaid wages – a quick guide
The recovering of unpaid wages can be an embarrassing situation for an employer to be put in. Businesses obviously want to pay their workers only what they’re due – they have to make a profit, after all. However, employers must bear two issues in mind if they have overpaid their workers in wages. Firstly, employers must act in accordance with the law in recovering the money that they believe has been overpaid. Secondly, recovering overpayments of wages can cause employers embarrassment and can damage the morale of their workers.
There are four issues that an employer should consider in attempting to recover an overpayment of wages to a worker:
- Has an overpayment actually been made?
- What is the value of the overpayment?
- What are the legal routes through which an employer can recover the value of the overpayment?
- How can the employee stop the employer recovering the overpayment?
Has an overpayment actually been made?
The first issue that should be considered is the obvious one of whether an overpayment has actually been made. This is a crucial consideration – if the employer attempts to deduct money from the worker’s wages as a result of a false belief and is taken to the Employment Tribunal then they may be the subject of potentially expensive and lengthy proceedings. It’s important, therefore, that the employer gather all evidence possible of the overpayment and that the evidence is presented to the employee. Although the presenting of the evidence is not strictly necessary it may stop the worker from reverting to Employment Tribunal proceedings.
What is the value of the overpayment?
Again, this is a fairly obvious consideration. The employer won’t want to collect too little from the worker but then again collecting too much can cause damage to morale (as the employer is seen as unfair). However, an important consideration is that the employer is to a certain extent protected from having proceedings issued against them if they mistakenly but honestly collect too much money from the employee’s wages as compensation for the previous overpayment.
What are the legal routes through which an employer can recover the value of the overpayment?
An employer can deduct sums from the wages of its workers if it honestly believes that an overpayment has been made.
How can the employee stop the employer from recovering the overpayment?
An employee cannot bar an employer from recovering overpayments by deducting sums from their wages if such an overpayment has in fact occurred. However, the important element, as stated above, is to be sure that an overpayment has occurred.
An employee can also use the defence of common law promissory estoppel to prevent their employer from reclaiming overpaid wages. To qualify for protection under promissory estoppel the employee must satisfy 3 conditions:
- That their employer made representations of fact that entitled them to believe that the sum if money overpaid was theirs; and
- That the employee has “changed their position” (by spending some or all of the money) and in doing so acted in good faith and without notice that their employer wished to recoup the overpayment; and
- That the employee was not primarily at fault for the mistake