Salary overpayments

If your employer has paid you more than you were entitled to, it can usually recover the money by taking it from your later pay. Overpayments are one of the exceptions to the normal rules on deductions from wages, so your employer does not need your prior written agreement. What it should do is tell you, explain how the overpayment happened, and agree a reasonable repayment plan. Most public sector employers have a written overpayments policy that sets out how this works.

Why overpayments happen

Overpayments are common in large organisations with complicated pay. Typical causes include:

• a leaver or change of hours not reaching payroll in time
• staying on full sick pay after you should have moved to half pay or nil
• being paid for maternity leave at the wrong rate
• an allowance or enhancement continuing after you stopped qualifying for it
• a pay band, spine point or increment applied too early
• a backdated pay award being processed twice

Sick pay is a frequent one in the NHS and councils, because occupational sick pay depends on your length of service and how much sick leave you have already had. Our guides to NHS sick pay and council sick pay explain the scales.

Your employer’s right to recover

Part II of the Employment Rights Act 1996 says deductions are only lawful if allowed by law, your contract or your prior written agreement. Section 14 then lists exceptions, and recovering an overpayment of wages or expenses is one of them. That means you cannot bring an unlawful deduction claim in the tribunal just because your employer took back an overpayment.

The exception only covers genuine overpayments. If you were actually entitled to the money, or the amount being recovered is wrong, the deduction is not covered and you may be able to claim.

How recovery should be handled

There is no fixed legal formula for how fast an overpayment must be repaid, but good practice, and most public sector policies, follow similar lines:

• You are told in writing how much was overpaid, the period and the reason.
• You are shown how the figure was calculated, including whether it is gross or net.
• You are offered a repayment plan, often over a period similar to the one in which the overpayment built up.
• You can ask for a longer period if repaying quickly would cause hardship.

An employer that takes a large sum in one go without warning may be acting lawfully on the narrow point of the deduction, but it can still be in breach of its own policy or of the duty of trust and confidence. A grievance is the right route for that.

Gross or net

When an overpayment is recovered in the same tax year, payroll usually takes back the gross amount and adjusts tax, National Insurance and pension contributions so that you only lose what you actually received. If the overpayment was in an earlier tax year, your employer may ask for the net amount instead, since the tax has already been reported to HMRC. Ask payroll to show you the calculation.

Pension is worth checking too. If you were overpaid, extra pension contributions will have been taken and extra pensionable pay recorded. The correction should reverse both.

When you might not have to repay

In limited circumstances, a court may decide that an employee does not have to repay an overpayment. The defences are narrow and usually need all of the following:

• The employer led you to believe the money was yours.
• You did not know, and had no reason to suspect, that you had been overpaid.
• You changed your position because of it, for example by spending the money in a way you would not otherwise have done.

These arguments are made in the civil courts, not the employment tribunal, because recovery of an overpayment falls outside the tribunal’s unlawful deductions jurisdiction. They rarely succeed where the overpayment was obvious, such as a payslip showing a full month’s pay after you left.

If you notice an overpayment, tell payroll in writing straight away. Spending money you know is not yours makes these defences unavailable and can, in some cases, be treated as a conduct issue.

What to do

Check your payslip each month so mistakes are caught early. Our guide on how to read your payslip covers what each line means.

If you get a letter about an overpayment:

1. Ask for the calculation in writing, including the period and the gross and net figures.
2. Check it against your payslips and any letters about changes to your pay.
3. If you agree, propose a repayment plan you can afford.
4. If you disagree with the amount, or the plan is unaffordable, raise it with HR. If that fails, use the grievance procedure.

Your union can negotiate a repayment plan for you and check the calculation. ACAS can explain the legal position. If an overpayment has left you in financial difficulty, many NHS and council employers have hardship funds or salary advance schemes, and an employee assistance programme can usually put you in touch with debt advice.