Where an employer has accidentally overpaid an employee can it reclaim the overpayments?

Where an employer has made an accidental overpayment of wages, the statutory position is that the employer can recover this by deducting the overpayment from future wages or salary. This is covered by s.14 of the Employment Rights Act 1996, which provides that protection from deductions from wages does not apply to an overpayment of wages or employment-related expenses. If an employer makes an overpayment in one pay month, it should be relatively straightforward for it to deduct this in the month following.

The position can become more complex if the employer has made overpayments over a long period of time, perhaps due to a payroll error, or where the overpayment was made some months ago and has only recently come to light. The employee may have a defence to a claim for repayment on the basis that he or she was led to believe that there was an entitlement to the money and that, in good faith, he or she has "changed [his or her] position" in reliance on the money. This usually means that the employee has spent it. Provided that the overpayment is not the fault of the employee, he or she may be able to defend a claim for repayment on these common law grounds. An employer will be in a stronger position if a prompt discovery is made and the overpayment is quickly brought to the employee's attention.

In practical terms, where an overpayment is discovered after some time, it may be advisable for the employer to discuss this with the employee and try to agree a programme of repayment over a period of time. In some cases it might be practical for the employer to consider writing off part of the overpayment rather than become involved in legal proceedings to recover the full amount. However, each case should be considered on its individual facts.