Oops! I overpaid my employee. Now what?
Occasionally, in the course of running payroll, an employee is overpaid. This may happen due to human error, software error, advance/loan, fraud, etc. What are your rights as an employer? Can you seek reimbursement of that overpayment? Can you withhold subsequent wage payments? Does the employee get to keep it? Let's get into it.
Federal law allows employers to seek reimbursement from their employees or make deductions from their future pay, so long as their wages don't fall below minimum wage ($7.25). Before making wage deductions. The federal Department of Labor strongly recommends that you obtain a signed, written repayment agreement from your employee before deductions are made.
If your employee refuses to pay the funds back voluntarily, you might consider a lawsuit against the employee to recover the overpayment amount. However, a lawsuit may end up costing much more than the amount of the overpayment, to tread carefully.
In addition to federal law, every state has their own set of rules regarding overpayment of wages, including required notifications, written consent, statute of limitations, allowed deductions, etc. For example:
- In Utah, you are not allowed to withhold any wages without prior written authorization. In other words, it is mandatory to have a signed agreement, not just recommended.
- In California, limited wage deductions are allowed so long as the employee voluntarily agrees to repay, and their wages are not reduced below minimum wage. However, deductions cannot be made from an employee's final paycheck, even with consent.
- In New York, you can only deduct overpayment of wages if the mistake is due to a mathematical or clerical error.
- In Michigan, you are required to notify the employee in writing of the overpayment.
- In Washington, you need to provide documentation of the overpayment and terms of the adjustment.
It can be difficult to navigate the legal nuances of each state. If you find your company in an overpayment of wages situation, please contact Employer-Lawyer, PLLC to guide you through the process.
