If you have been accidentally overpaid by your employer, it may seems like a lucky bonus, but don’t assume you can keep the money!  Here we look at overpayments for Employees and Freelancers/Sole-Traders.

For employees

Where an employer has made an accidental overpayment of wages or expenses (including holiday pay), the legal position is that the employer can recover this overpayment from an employee by deducting the amount from future wages or salary. The situations where an Employer can make deductions from your wages are limited but this is one situation that is allowed by legislation (see our full article about authorised and unauthorised deductions from wages).

However, this can become complicated.

  • If an employer makes an overpayment in one pay month/week, it should be relatively straightforward for them to deduct this in the following pay period.
  • If the employer has made overpayments over a long period of time (perhaps due to a payroll error) or where the overpayment was made some months ago and has only recently come to light, the employer needs to tread carefully in recovering the money.
  • Although Employers can make deductions for the overpayment without your agreement, if a large amount is owed they should be careful in their approach and be flexible and reasonable.
  • Where a large overpayment is discovered, it is advisable for the employer to discuss this with the employee and try to agree a programme of repayment over a period of time (there is no set time period).
  • If you cannot come to an arrangement about repaying your employer you could use your internal grievance procedure to try to resolve the matter. You could also choose to sue your employer in a Civil Court if you felt they were being unfair and unreasonable to recover the repayment. Your defence would be that you were led to believe that there was an entitlement to the money, it was not your fault, and that, in good faith, you have “changed [your] position” in reliance on the money. This usually means that you have spent it!
  • However, if you cannot come to an arrangement to repay the money the employer also can take you to a Civil Court to recover the money. Clearly at this point the employment relationship between you will have broken down though!
  • In both cases the Judge will consider whether the ‘injustice’ of requiring you to repay the money is greater then the ‘injustice’ to your Employer of not receiving it. They will also consider what you have done with the money and how much effort you may have made to report the overpayment, whether you received payslips (legally it is one of your employment rights that you should receive an itemised payslip). They may ask you to repay some, all or none of the money and will look at the repayment requirements your employer has and how easily you could achieve that.
  • In some cases it might be practical for the employer to consider writing off part of the overpayment rather than become involved in legal proceedings to recover the full amount.

However, if you have now left the employer where the overpayment occurred, it is obviously a slightly different situation as your former employer is unable to make a deduction from your wages. If, at some time after you have left employment, your former employer contacts you claiming that you owe them money that was overpayed in your former employment what will happen?

This will depend on what was written in your old employment contract – some contracts state that, if an employee leaves the employment owing the employer money that could not be recovered from final wages, the amount owed becomes a civil debt. If there is no contractual provision to treat the alleged overpayment as a civil debt, the employer may have considerable difficulty in enforcing payment if you refuse to cooperate. In either situation, you should obtain advice from an organisation providing advice on legal or employment matters.

For freelancers

Although overpayments for freelancers / sole traders may be unlikely (you’re more likely to have to deal with late payments!), if you are overpaid by a client then common sense says you should repay any overpayment to ensure you keep a good relationship with the client to secure future work. It is always advisable that your work with the client is covered by a form of contract that should specify when and how much you’ll get paid and which can be referred to by both parties.

Overpayments for freelancers are made more complicated however due to tax / VAT / accountancy implications, and it is something you may want to take advice from your Accountant about.

One possible way to deal with overpayments is if you will be issuing future invoices to the client. You could just leave the overpayment and allocate them to the next invoice you send in as a credit, showing the previous invoice number (so a deduction from your total amount owed). However, if it is likely to be the last invoice to that client, you can send them a credit note referring to the invoice number. We suggest you speak to your client and your accountant if this happens to you!

If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to us at The HR Kiosk (click here) – a Human Resources Consultancy for small businesses – you can retain us for as much time as you need.

Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.

Photo by James Cridland

  • Seaton

    Hi

    I’ve have been on long term sick and receiving PHI instead of salary through my company payroll for the last 10 years. Today, I have had a bit of a shock because as well as being paid my PHI, I have also been paid my monthly salary for the first time in 10 years – it appears from my payslip that somebody has accidentally put me back on the payroll.

    This means I have received a substantial over payment of 1 months salary and being an employee of an enormous corporation this would probably continue for a very long time if I don’t let them know.

    In my current situation, to keep things simple and safe, I always stay honest with the HR department (my only contacts in the company), and always let them know immediately of any issues. I will be contacting them shortly to ask them why I have received this payment (putting the ball in their court), and no doubt they will want the money back.

    I am guessing that they will somehow want to deduct the salary payments from my future PHI payments, even though they will have to take me back off the payroll first. I will need to ensure I recover the excessive TAX and NIC deductions that have been made.

    Do you have any advice on how to handle this, and are there any pitfalls to be aware of in this very odd situation?

    • Hi Seaton, thanks for your message. You’re doing the right thing, so at the moment there is nothing else I can advise. Hope you can sort it out with HR easily. Good luck. Regards, Lesley, The HR Kiosk

  • Sue bascombe

    I joined company in April 2015 on the first months pay I told them this wrong wrong manager sad no it’s right on second payment I asked again she went to her manager and said no that’s right 4 months later top manager said it was wrong and you have to pay it back after meetings with managers and union they still paid us wrong money we decided to put in grievance against company they said they would sort everything out as some money was due to some staff we have not kept this a secret and it’s quite worrying as money is minting up and 11 months since we have been TUPE over from NHS to this company pay is still wrong what can we do this is so stressful to all team and other units

    • Hi Sue, thanks for your message. I can’t really think you can do much more, if you have got the union involved and you have put in a grievance; you could make sure the top manager knows it’s still not been sorted out if you haven’t already done that. Ask your union to chase it again. Good luck. Regards, Lesley, The HR Kiosk

      • Sue bascombe

        Thank you on this payslip we have just found out they didn’t pay our pension either if I tell them I’m not signing a agreement to pay back money they say I owe until I get a payslip with the correct payment listed can they sack me or suspend with out pay or penalise me at work

        • Hi Sue, you need to agree the overpayment and I think you would right to make sure you are getting the correct pay (and the pension, that is serious) before you do this. Regards, Lesley

  • Harry Gemston

    I am now a business owner and I used to be in employment more than a year ago. One of my previous employers from 5 years ago has written via a debt collector that I owe them £2000 due to overpayment, I think this is ridiculous, what do you recommend?

    • Hi Harry, it might be worth your while discussing this with a Solicitor, you would certainly need evidence from your ex employer of how and when and why you were overpaid. Good luck. Regards, Lesley, The HR Kiosk

  • Mike

    I need your advise please, I have resigned from my job two months ago, and I have discovered that my employer still paying my salary. I have spent the money already as I don’t usually check my bank account, and I believe they will continue paying me for the following months. What do you think the best approach to deal with this?

    • Hi Mike, thanks for your message. You need to tell them about this asap so at least this will stop, as you don’t want to have a large debt owing to them as that will get complicated. Good luck. Regards, Lesley, The HR Kiosk

  • Lynne B

    Hi please can some one advise me on an overpayment of wages, it was only over 3 months wen it was realised, I only work 16 hrs a week an my employer wants the overpayment paid back over a 3month period so these payments would amount to nearly 1weeks wages every month, rite now I am a single parent with 1dependant so all I have coming in is my wages (which dont amount to much as my employer has also slashed my hours from 34 to 16) I have asked him if we can come to some sort of an agreement and he said he was being nice by splitting it over 3 months because really he should take it all back in one go, if it goes ahead he will leave me in financial straits and I am so frightened of wots goin to happen, plz is there anything I can do .

    • Hi Lynne, thanks for your message. Your employer needs to understand he needs to be flexible about this, as clearly the overpayment is not your fault. Can you write to him to explain some details to him and see if he will be a bit more flexible? Other than that your option is to put in a grievance or take your employer to Court, but neither of those may be ideal. Good luck with this. Regards, Lesley, The HR Kiosk

  • Marie

    Hi All,

    I need help with a situation, I left my last employement in the UK a few months ago and have moved back to Canada. I’ve received an email from them saying I was overpaid (twice in June 2015) which is now almost a year ago. As I am Canadian, I have a few bank accounts and never realised this happened and neither did they until now. For the entire year I worked there, I’ve received about 3 pay slips and have checked my contract and nothing says that money due has will become a civil debt. Now they are asking me to transfer the money back as soon as possible. I am not in a situation where I can spare that kind of money and am wondering what my rights are when it comes to this? Any help would be amazing.

    • Hi Marie, thanks for your message. The only advice I can give you really is contained in the article above. I would suggest writing to them to explain what you have said above. As you are now in Canada they may choose to drop this if it’s not a huge amount of money, as otherwise it will cost them to enforce it through the Courts. Good luck. Regards, Lesley, The HR Kiosk

  • Alex

    Hi,
    Would appreciate someone’s help, it was bought to my attention that I had been overpaid by my employer for roughly 6 months.
    I was full time and moved to part time so that’s where the error occurred. The thing is I don’t recall signing a new contract when I moved to part time. They have given me the figure of how much to pay and they have given me an option of repaying the whole thing!! Or repaying over 6 months.
    Is there anything I can do?

    • Hi Alex, thanks for your message. If they have overpaid you then it’s most likely you will need to pay this back (and that you haven’t signed a new contract is not relevant here). You need to agree with them the repayment period that you can manage. Good luck. Regards, Lesley, The HR Kiosk

  • Ruben Alog

    Uuh

  • Ruben Alog

    Hi i need advice about an issue i have at work. My employer has overpaid me for nearly 7 months and it has just come to the attention. They are asking for me to pay it back and sure they have legal rights to take the money but my problem is that i was not aware of my actual rates in my wage i never signed a contract even to this day and in my opinion i should not pay them back becuase i never had a contract saying how much would i get paid each month, i never had any discussion about wages when i had my interview because i thought i would get a contract stating all the relevant information i need the first time i knew something about my wage was my first ever payslip. They have just sent me a letter about how they are getting thier solicitors to seek recovery through the court is thier anything i can do? I just turned 18 a few months ago and i’m in this difficult situation should i just agree to repay them or is their something else i can do. Please help