87. Overpayment of Wages Briefing

Introduction

This briefing aims to provide some basic information on the overpayment of wages. It also highlights if an employer can force the repayment of overpaid wages- paid to an employee- back to the employer. It is important to remember that this subject can differ quite considerably amongst members. This is a subject that UNISON representatives and members will face on a regular basis.

What is the Overpayment of Wages?

Employees' finding that their payslip shows that their wages seem a bit higher than normal can find themselves in a difficult situation. Many people believe that an overpayment is legally theirs, but they can be in for a nasty shock.

Employers can only make deductions from an employee's wages in limited circumstances. They can deduct tax and National Insurance (NI). They can make other deductions if they have previously received the employees consent in writing.

Such an exemption to the rule that a deduction should be made is where there has been an overpayment of wages.

What Counts as Wages?

When considering whether an employer can make a deduction from an employee's wage, the following all count as wages:

• Normal Pay including fees, bonuses commission and expenses.

• Holiday Pay.

• Payments ordered by an employment tribunal, such as payment of wages between an employee being dismissed and being given their job back.

• Payment, which have to be made by law instead of wages, such as guarantee payments when the employee takes time off to do union work or work for a job if they are to be made redundant.

• Statutory sick pay.

• Statutory maternity pay, statutory paternity pay and statutory adoption pay.

Can an Employer Force the Overpayment of Wages?

By law, an employer is only entitled to make certain deductions from an employee's pay. If the employer does not pay the employee at all, this counts as a 100% deduction.

There are rules about what counts as pay for the purposes of when the employer can make deductions. In most cases, an employer can only lawfully make a deduction from an employee's pay if the deduction is: -

• Required to be made by law. For example, employers are required to deduct tax and National Insurance from their employees' pay.

• Permitted by the employee's contract. This means that there must be a specific clause in the contract, which allows for that particular deduction to be made. The deduction can then only be made lawfully if the employee is given a written copy of the term in the contract before any deduction is made under it. This would cover deductions such as union dues or payments to a pension scheme.

• The employee has agreed to the deduction in writing before the deduction can be made.

But, there are particular deductions, which an employer can make which do not have to fit into the catorgies listed above. These deductions are: -

• A deduction due to the worker having been genuinely overpaid.

• A deduction made because the employee took part in industrial action.

• A deduction made by an employer under a court order or an order from an employment tribunal, such as an attachment of earnings order (commonly know here in Scotland as an earnings arrestment).

Retrospective consent to deductions from wages.

An employer might ask a worker to agree to a change in the terms of his or her contract or to give his or her consent to allow for deductions to be made on account of certain conduct. However, if the employer makes a deduction in respect of any instances of such conduct that took place before the contract was varied or the consent obtained, this remains unlawful. The same principal applies to payments by workers to employers.

An example of this would be, when an employer might obtain a worker's consent to allow for deductions to be made on account of lateness. The employer would then be entitled to make deductions on account of any future incidents of lateness, but would not be entitled to make reductions on account of any such incidents that occurred before the worker's consent was obtained.

Paying back overpaid wages.

In general, overpayments are recoverable by an employer regardless of the circumstances in which the overpayment arose. However, if an employer incorrectly calculates the amount of pay due, resulting in an overpayment, then there are policy guides which should influence the employers decision on whether to recover the money or not. If the overpayment is to be repaid, the employer will be expected to act reasonably. Notice should be given of the recovery and deductions should be staged over a period of time.

Action for branches

This briefing is primarily for information purposes on the Overpayment of Wages. Branches should be aware that this would differ across workplaces and individuals concerned.

For further information

Scottish Public Finance Manual

www.scotland.gov.uk/library5/finance/spfm/spfm-81.asp

Employment Rights Act 1996

(Chapter 18)

http://www.hmso.gov.uk/acts/acts1996/96018--b.htm#13

Department of Trade and Industry

http://www.dti.gov.uk/er/pay/contracts-pl810b.htm