Accidentally overpay employees? How to recoup the money
Most employers have some process or electronic tool to help determine how much they should pay employees. Sometimes, these systems require inputting key information. Whether human error or a technical glitch, mistakes can happen that result in overpaying one or more employees.
When that happens, employers might simply want to deduct the overpayment from an employee’s future paycheck. It wasn’t really the employee’s anyway, right? Employers must, however, tread carefully and quickly. They must:
- Review applicable records to confirm that the mistake happened.
- Determine the exact amount of overpayment.
- Discuss the situation with the affected employee(s) and show evidence supporting the finding.
- Work with employee(s) to create suitable repayment plans. Consider the employees’ financial situations and come up with an agreed-upon plan.
Employers must fix these issues before the end of the year, or they’ll also make Form W-2s inaccurate.
Federal law
Under the federal Fair Labor Standards Act (FLSA), employers may deduct overpayments from employees’ future wages, even if that would result in the employees being paid below the minimum wage.
Big lump-sum deductions, however, might not sit well with employees, risking negative employee relations and trust.
State laws
Just because the federal FLSA allows related deductions, many state laws have limits on how much employers may deduct.
In California, for example, employers may not make deductions to recover overpayments unless the employer and employee have a written agreement, and the employee voluntarily consents to the deduction. The deduction also can’t cause the employee’s pay to fall below the state’s minimum wage.
An ounce of prevention
To help prevent overpaying employees, employers may take a few steps, such as the following:
- Automate payroll processes as much as possible;
- Audit all related processes and tools regularly;
- Have clear timekeeping and payroll policies; and
- Encourage employees to review their payments and paystubs regularly, and ask them to report any issues quickly so mistakes can be resolved.
Key to remember: Mistakes happen, including those that result in overpaying employees. Employers can, however, take steps to fix them and prevent them from recurring.














































