Case Study: Claiming Back Employee Overpayments
It has long been an issue for Employers who have inadvertently made an overpayment to seek recovery of this – a recent ERA Determination however reinforces the Employer’s right to seek such recovery, and the costs associated with seeking repayment.
Many employment agreements contain standardised wording to allow an Employer to deduct monies reasonably believed to be owed to the Employer at the conclusion of the Employee’s employment. In such case the Employer may do this after consultation with the employee when calculating the final pay.
However, two situations may arise where it becomes more problematic for an Employer to seek recovery of wage payments where an overpayment has been made in error.
Section 6 of the Wages Protection Act 1983 allows an Employer who has inadvertently made an overpayment to the Employee to seek full recovery, without the Employee’s consent, provided that the Employee is advised of the overpayment error on or before the next day on which the employee is due to be paid, and the payment is then recovered not later than two (2) months after the date that this notice was provided. No additional consent is required in such circumstances since the deduction is in accordance with the provisions of the Act, however the principles of Good Faith would dictate that any recovery is made in a manner that does not cause undue hardship to the Employee through the making of the repayment i.e. regular instalments payments rather than one lump sum that may create a financial disadvantage for the Employee on any particular week.
The issue however becomes increasingly harder when the overpayment occurs in the final pay, or after the final date of the Employee’s employment.
In Higgins Coatings and Waters, due to a payroll error, Mr Water’s continued to receive his full salary payment for the two-month period after his final day of employment. Despite numerous attempts to contact Mr Waters about the overpayment he failed to respond to the Employer. Higgin’s was therefore left with no option but to file a claim in The Employment Relations Authority seeking an order requiring Mr Water’s to repay the money. Mr Water’s failed to attend the Authority Hearing and as such the Authority issued an order requiring him to repay the full $8,596 within 28 days, adding a further $2,250 to the outstanding debt to compensate the Employer for costs associated with attending the ERA Hearing. This 25% uplift in total costs to Mr Water’s demonstrates that an early agreement to repay money that he was not entitled to, even if he had agreed to enter a time-based repayment plan, would have been more beneficial for him rather than putting his head in the sand and hoping the Employer’s claim went away.
Based on this case, and the provisions of Section 6 of the Wages Protection Act 1983, Employer’s should not be afraid of pursuing Employees who have been overpaid and who show a reluctance to rectify the problem on a voluntary basis.
Russell Drake Consulting Ltd represented Higgins Coatings in the ERA with respect to the above matter.