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Managing overpayments to staff

by in HR - Human Resources, Pay, Salary, Staff

Quite a few forum posts have appeared recently questioning what to do if you overpay a member of staff. Can I recover the money? Is there a time limit on reclaiming it? What do I do if the employee doesn’t give it back?

Let’s shed some light on this topic.

Hopefully we’ve all got a clause in our contracts that covers overpayments during a person’s employment with us. Mine states:

“The practice reserves the right to recover from you or to deduct from any sums payable to you any sums which you may, from time to time, owe to the practice. Such sums may include, but are not limited to, any overpayment of salary, remuneration, expenses or any other payments (whether statutory, contractual, discretionary or otherwise and whether made by mistake, through any misrepresentation or otherwise), any holiday taken in excess of your entitlement, any outstanding loans to the practice, any advances provided to you, any fees or costs incurred by the practice in funding your attendance on an academic, professional or training course, any relocation expenses, and the cost of repairing any damage or loss to the practice’s property or any other loss to the practice, including any losses sustained in respect of the property or monies of a patient, a person making use of the practice’s services, a visitor or other employee, if such damage or loss was caused or contributed to by you, either through carelessness, negligence, recklessness, breach of the practice’s rules or policies, or any dishonesty on your part, or you are in some other way responsible for such damage or loss. You should also appreciate that the practice may require you to repay, either by deduction from salary or any other method acceptable to the practice, any losses sustained in relation to the property or monies of the practice, patients, persons making use of the practice’s services, visitors or other employees as a result of any carelessness, negligence, recklessness, breach of practice rules, policies or procedures, or any dishonesty on your part. The practice may also require you to repay any damages, expenses or any other monies paid or payable by the practice to any third party for any act or omission for which the practice may be deemed vicariously liable on your behalf. The practice may also make a deduction from your wages for any jury service you may undertake. This list is not intended to be exhaustive.”

Now, like me, you probably gave up reading halfway through that. The language of contracts is arduous at best, but it needs to be to ensure you’re covered from a legal aspect.

Another good clause to add would be something like this:

“Employees have a responsibility to check that the payments they receive are correct and advise their line manager if the amount received is different to the expected contractual payment.”

Essentially, the wording should state that if an employee is overpaid for any reason, the practice has the right to recoup that money. We can do this either by deducting it from the employee’s salary or we can “reserve the right to recover it” from them. This implies that if an employee doesn’t hand it over, we’ll come and get it! It also says that if someone has been overpaid and they know it, they must tell the practice; i.e. don’t spend it!

In terms of recovery, you should try to get the money back as soon as you’re made aware of the overpayment.

If the person is still in your employment, explain to them that an error has been made and that, as per their contract of employment, you need to recover the money. Approach these conversations sympathetically as you don’t want to risk damaging your relationship with the staff member. If they haven’t spent the money, you can ask them simply to return it to you. If they have spent the money, they either need to pay it back to you or you will have to deduct it from their future earnings. If this is going to put them in financial hardship, you can agree a repayment plan where it can be deducted in a number of smaller chunks by mutual agreement.

If the person has left your employment, you’re still entitled to recoup the money provided your attempts are made within six years of the overpayment being made. Again, you’re reminding them of their contractual obligation but this time you have no way of deducting the money from the employee. So the best thing to do is to make contact with them to explain that the overpayment has been identified and ask them what their plans will be to repay the money.

This is where things can get nasty. Many former employees will be of the opinion that the overpayment wasn’t identified when they received it, or by the time they left the organisation, and so why should they have to repay it? It’s your mistake, right?

Correct, it is your mistake. But their contract of employment clearly stated that:

  • You should have reported it if you were aware that you’d been overpaid (and in most cases people are aware!)
  • We will seek to recover any overpayments

And legally, that’s enough. You can apologise for the mistake and show appreciation of their circumstances, and you may need to provide proof to the individual that the overpayment was made, but if the money has to be recouped you need to make arrangements for this. Offer them the option of a payment plan if they’d experience financial hardship. Follow everything up in writing.

If they continue to refuse to pay, you need to make an assessment of whether it’s worth going down the legal route. The cost of taking a former employee to court may end up costing you more than the amount owed, in which case you may decide not to bother. However, if the amount owed is considerable, a court claim will be required. Hopefully, after explaining to the employee how far you’re willing to go, they’ll agree a repayment plan with you.


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