COMPLIANCE
Correcting overpayments
LoraMurphy ACIPP, CIPP policy and research officer, discusses the causes andwhat can be done to prevent the incidence of overpayments
I n my previous article in this series – ‘Preventing overpayments’, in the May edition of Professional magazine, I provided some tips that could potentially prevent overpayments occurring, which all payroll professionals are aware can be complex and troublesome to rectify. Unfortunately, there will always be scenarios in which overpayments present themselves, so it is crucial to identify the key considerations when correcting overpayments to ensure that employers and payroll teams are acting in both a compliant and an ethical manner. The legal stance Section 14 of the Employment Rights Act 1996 (http://ow.ly/Xzvz30rG8oH) provides that a deduction made from a worker’s wages for the purpose of reimbursing the employer for either an overpayment of wages or an overpayment in respect of expenses incurred by the worker in carrying out the employment made (for any reason) by the employer to the worker, is not classed as an unauthorised deduction. Guidance on Gov.uk (see http://ow.ly/1cNx30rG8HE) confirms this: “Your employer is not allowed to make deductions unless there’s been an earlier overpayment of wages or expenses.” This means that an employer is entitled to deduct money from a worker’s future wages until it has recouped the amount of the overpayment. It is, however, good practice to stipulate the process relating to overpayments within contracts of employment so that employees know where they stand. How this is structured and worded needs to be carefully considered to ensure that the employer protects themselves. This will also aid financial awareness, which is a prominent topic at present, enhanced by the outbreak of coronavirus. It would be advisable to write to the employee to advise them that
an overpayment has been made, and to confirm the amounts of money that will be reclaimed from them, and when they will be taken. Clear communication channels could potentially prevent any future legal action from the employee, and a recovery agreement written up and signed by both parties would be clear evidence that the employer has been open and transparent with the employee. ...good practice to stipulate the process relating to overpayments....
overpayments process. Both repayment options should be explained (i.e. payment as a lump sum or payment in smaller instalments) and a discussion held around the affordability of each. Ideally, a repayment method should be agreed and put into writing, with both parties signing this. The payroll team can then action through payroll software the collection of the overpayment using whichever method has been agreed. Where a repayment plan cannot be agreed, the advice of ACAS (Arbitration, Conciliation and Advisory Service) (http://ow.ly/4XeC30rGSCL) maintains that employers must not simply deduct money from the wages of workers but should contact ACAS to discuss options. Overpayments to leavers It is widely accepted that a common cause of overpayments is when employees leave the employment. Indeed, it is not unheard of for an individual to be left on the payroll system and to continue being paid despite the fact that they have left. Similarly, they may have overtaken annual leave or received training with their employer for which they need to repay the associated amounts. If a leaver’s final salary payment has not yet been issued, the repayment figure could be collected from that. If, however, no further payment is due, the company will need to contact the former employee and discuss the fact that an overpayment has been made. Individuals in this situation could potentially refuse to repay any money, at which point the employer may be forced to consider legal action. Correcting payroll software A mistake relating to an employee’s pay or deductions that is highlighted in the current tax year can be corrected by updating the year-to-date (YTD) figures in the next regular
Overpayments to current employees
Where it has been established that an overpayment has been made to an employee who is still included on payroll, businesses have two main options: ● request that the employee pays off the amount in full, in one lump sum, or ● set up a repayment plan so that the employee can pay back the overpayment figure in smaller instalments until the figure has been repaid in its entirety. Prior to establishing how the reclaim of the repayment will be actioned, the employer should advise the relevant employee as soon as an overpayment is identified. Ordinarily, it will be the task of the payroll department to do this, but in more sensitive situations this activity may be passed to the human resource (HR) team. The more detail that can be provided to the employee the better, as this shows that there is a clear focus on communication, ensuring that the organisation has a smooth, seamless
| Professional in Payroll, Pensions and Reward | June 2021 | Issue 71 22
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