• Brett Reed

What you should do if you mistakenly overpay an Employee?



Can I reclaim the money back?

Dealing with a situation where an employee is overpaid is often frustrating as it is confusing. A common reason for overpayment is a clerical error or incorrect data input into the payroll software where you had no such intention of making the payment. Before you decide to recover the funds, you must notify the employee by letter, email or phone.

The principles regarding the right to recover funds were determined by the High Court in 1992. Although, the method in which am employer may recover the fund was not considered in that decision. You must understand your rights and responsibilities when it comes to recovery of the funds.

In Section 324 of the Fair Work Act, deductions can occur if;

  • The deduction is authorised in writing by the employee,

  • the deduction is authorised by or under modern award or FWC order,

  • the deduction is authorised the employee in accordance to the employment agreement,

  • the deduction is authorised by or the Commonwealth, a state or territory, or a court order.

However, deductions are not allowed if;

  • It benefits the employer directly or indirectly, and may be unreasonable to the employee,

  • the employee is under 18 years of age and their parent has not agreed to the deductions in writing.

If the deduction is not authorised by a court order, a law or an award/agreement, the employee must sign in writing. The employee must nominate a frequency and amount that will be repaid to you, via cash, cheque or electronic transfer. Once an agreement has been reached, you both must sign in writing.

You should talk to your employee and discuss with them their options. However, if they do not agree with the options available to them, you should seek legal advice. Confronting the problem earlier on with all the information, will make the process and discussion less painful.

For more information, please visit Deducting Pays and Overpayment or contact our Payroll Support Team on 07 3049 1860.

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