Overpayment of Staff

It’s always frustrating for an employer when they realise they have overpaid an employee.It seems simple to expect the employee to simply return the money or take it from the next pay.However things are never as simple as they seem, particularly if the overpayment occurred in a previous financial year.

There are several options available to employers when overpayments occur, but they can be confusing. Before you notify the employee by letter, email, or the awkward phone call, you need to know what your rights and responsibilities are when it comes to recovery of the funds.

As nice as it would be to advise the employee of the overpayment and request the funds be returned, it’s rarely that easy. Before repayments can begin, the employer and employee must sign a written agreement which detail the reason for the overpayment, the amount overpaid and method and frequency by which the repayments will be made. So before you sit down with the employee to talk terms, you need to do some homework on the rights of the employer – and employee – in this situation.

To decide whether you are legally entitled to withhold the amount from the employee’s earnings, begin with a search on the word ‘deduction’ in the applicable award or agreement. They will all contain descriptions of how deductions are to be managed, with some containing a clause directly relating to the recovery of overpayments.

For example the Maritime Offshore Oil and Gas Award 2010 states in clause 15.2 An employer may deduct from any amount required to be paid to an employee under this clause the amount of any overpayment of wages or allowances.’ Many awards, however, do not set the terms out as clearly as this one does.

Failing the award specifically dealing with overpayments, your next reference point is section 324 of The Fair Work Act. It sets out the following legal framework for a deduction from an employee’s earnings to occur:

•The deduction is authorised in writing by the employee and is principally for the employee’s benefit; or

•The deduction is authorised by the employee in accordance with an enterprise agreement; or

•The deduction is authorised by or under a modern award or an FWC order; or

•The deduction is authorised by or under a law of the Commonwealth, a State or a Territory, or an order of a court

If the deduction is not authorised by a court order, a law or an award or agreement, the employee must agree in writing to the deduction being made. They must be able to nominate both the frequency and the amount that will be repaid, as well as whether the repayments are to be made as deductions or by cash, cheque or electronic transfer. Then once an agreement is reached, the written terms are to be signed by both parties.

Talk to your employee and discuss the available options with them. Let them know what their options are and what choices they have. However, if you have tried all of this and discussions break down before an agreement is reached, the next step in the process will be to seek legal advice.

Approaching the negotiation process with all of your information already at hand will hopefully make this difficult discussion less stressful for all involved.

Source: Australian Payroll Association