Despite the best efforts of employers and their payroll systems, it's inevitable that some employees will be overpaid at one time or another. Of course, if you're an employee being overpaid, seeing a nice bump in your paycheck might seem like a welcomed event. However, if you think you've been overpaid by your employer, stop to consider what you should do about pointing it out, keeping in mind your employer may be able to dock your wages to recover any overpayments made to you.
Recognizing Employee Overpayment Situations
There are a number of employee overpayment situations that occur. According to payroll system developer ADP, incorrect time sheet reporting is probably the most common cause of employer overpayments to employees. Also, managers may award bonuses to ineligible employees, leading to overpayments that would need to be recovered. Incorrect pay rates, such as when employees receive raises or when new employees are put on employer books at higher-than-authorized pay, also cause employee overpayments.
Realizing You've Been Overpaid
If you know your employer overpaid you, there's no downside to visiting payroll as soon as possible and pointing it out. Honesty is always the best policy in the employer-employee relationship, after all. Chances are also high that, at some point, your employer's payroll system is going to identify you as have having been overpaid. The sooner you stop your employer's overpayments, the easier it may be to pay them back -- even if you aren't required to do so.
Recovering Employee Overpayments
The federal Fair Labor Standards Act doesn't require employers to obtain employees' permission to dock wages to recover overpayments. However, many states do, in fact, require that employers obtain their employees' written authorization before deducting wages to recover overpayments. Illinois, for example, says that employers can't dock wages to recover an overpayment beyond the first paycheck immediately following the overpayment. New York state law also states employers can't deduct wages from employees to recover overpayments, though they can file civil suits seeking overpayment recovery.
Repaying Your Overpayments
How much you repay your employer for an overpayment depends on when the overpayment is actually recovered. For repayments made in the same year you were overpaid, you generally just repay the net overpaid wages you received, not the gross. Employers can recover from federal agencies any income taxes, Social Security and Medicare contributions on employee overpayments made in the current calendar year. Prior calendar year employee overpayments, though, are usually repaid on your gross wages because no recovery of withholdings is possible.
Tony Guerra served more than 20 years in the U.S. Navy. He also spent seven years as an airline operations manager. Guerra is a former realtor, real-estate salesperson, associate broker and real-estate education instructor. He holds a master's degree in management and a bachelor's degree in interdisciplinary studies.