Federal law regards wage overpayment as a pay advance or loan and does not prohibit your employer from taking the amount from your next paycheck without your consent. But state law might require your employer to have your written consent to make the deduction. If you no longer work for the company and the overpayment happened on your final paycheck, your employer may have to take legal action to get the money back.
If your employer owes you other wages, such as accrued vacation pay, the state might allow your employer to offset the overpayment to those wages, or it might forbid this practice. In the latter case, or if you don’t have any more wages coming to you, your employer will likely contact you and ask you to return the money. The company may file a lawsuit against you if you fail to give it back. If the amount is small, your employer might decide not to take legal action, as it might not be worth it financially. If your employer wins a lawsuit against you, it may become a matter of public record and could show up on your credit report.
If your employer outsources its payroll duties to a payroll service provider, and the provider made the error, your employer might be able to recover the overpayment from the provider. If the payroll service agreed to take responsibility for payroll errors that it makes, then it covers losses due to its mistake. Usually, there’s a contractual agreement between the employer and the provider outlining this condition.
If the overpayment happens as a duplicate check, your employer may place a stop order on the check if it has not been cashed. If it occurred as a duplicate direct deposit transaction separate from your regular wages, your employer may reverse the duplicate transaction from your bank account. If you already cashed the duplicate check or used the duplicate money in your bank account, your employer must go through legal channels to recover the overpayment.
What You Should Do
An overpayment is money that belongs to your employer; therefore, you should return it. Offer to pay back the money the minute you realize you were overpaid so your employer continues to think of you in a positive light. If you already spent the funds, ask the payroll department to set you up on a payment plan. Honor the agreement so you don't burn your bridges.
Many employers establish written policies on how they handle overpayments. The policy usually requires that employees sign an authorized statement allowing the employer to recover overpayments in a certain manner. But even with written authorization, an employer might be restricted in some way. For instance, state law may not allow payroll deductions for overpayments if they cause the employee’s wages to fall below the required minimum wage.
- Davis, Wright, Tremaine: Wage Overpayment Recoupment: State Laws Vary
- California Department of Industrial Relations: Vacation
- Privacy Rights Clearinghouse: Fact Sheet 16: Employment Background Checks: A Jobseeker's Guide
- HR.BLR.com: Payroll Laws: What If You Accidentally Overpay an Employee's Final Paycheck?
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.