Lynne Curry: Employer allowed to recoup overpaid wages

THE WORKPLACENovember 24, 2013 

Q. Our payroll clerk accidentally overpaid a new employee for almost a year. This amounted to $4,800. We didn't catch the error until we reviewed our W-2s.

Can we recover this money? When we told the employee who received the overpayment we thought he should return the money, he quit in protest. We suspect he knew he was getting the extra money all along, so we weren't sorry to see him go. Is there an issue that because he received the money paycheck after paycheck, we "gave" him a raise even though our offer letter specifically described his real wage?

Is this an error we have to just swallow?

A. According to Joe Dunham, statewide supervising investigator for the Alaska Department of Labor Wage and Hour Administration, Alaska employers can recoup the overpayment of wages to an employee resulting from bookkeeping errors.

"Nothing in Alaska law," Dunham said, "prohibits employers from retroactively correcting payroll overpayment errors as long as the employer has credible documentation showing the prior overpayment was a bona fide error."

Although federal regulations stipulate that an employer must give an employee three days' notice of its intent to make an overpayment deduction, when an overpayment can be recouped in one paycheck, Dunham says "these corrections can be made without prior notice to or the authorization of an employee and may even reduce an employee's wages to a zero balance. The method of reimbursement is a contractual arrangement between the employer and employee."

Why?

Dunham says when an employer accidently overpays an employee, the correction is not a true deduction from wages but merely a correction of a bookkeeping error.

Federal regulations also stipulate that an employer's notice needs to let the employee know he has the right to contest the deduction. If the overpayment needs to be spread over multiple weeks, the employer must give the employee three weeks' notice of its intent to deduct from future wages.

Not only do federal regulations require that an employer give an employee a week to respond to its intent to recover excess wages, they require the employer to address any issues raised by the employee within one week and give the employee the opportunity to disagree.

Within a week of such a discussion, federal regulations require the employer to notify the employee of its decision concerning the deduction and specify the amount to be deducted per pay period. Employers must keep copies of all these documents for six years from the end of the employee's employment.

Because your employee received these wages for many paychecks and has already left your employ, the situation is more complicated. Your only recourse may be to sue the employee in small claims court and hope he has the money to pay you if you prevail.

If you choose this option, you need to realize your employee may argue that you gave him a raise and the paychecks just confirm that. Can you prove that wasn't the case?

Finally, an amazing number of employers fall into the trap you have -- of discovering mistakes so late it's hard to remedy them. Employers absolutely need to review employees' paychecks to make sure they're accurate.

Dr. Lynne Curry is a management-employee trainer and owner of the consulting firm The Growth Company Inc. Send your questions to her at lynne@thegrowthcompany.com. You can follow Lynne on Twitter @lynnecurry10 or through www.workplacecoachblog.com.

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