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Can an Employer Take Back Wages Paid?
In general, an employer cannot take back any wages it has paid you for work you have performed, and it cannot refuse to pay you wages for work you have performed. That said, if your employer overpaid you for work you did, it may be able to take back the overpayment. And if you are working under a written contract that allows it, an employer might try to recoup wages or bonuses that have already been paid. Both state and federal laws apply to wages and worker protections, so check with your state's labor department for clarification.
Making Up Overpayments
When you put in an hour of work -- or a day, a week or any other time period -- for a specified pay rate, you are entitled to receive that money. If your employer wants to cut your pay going forward, it can do so (unless you have a written contract that doesn't allow it). But as the Labor Law Center explains, pay cuts "can never be retroactive." Once the work is done, the money is rightfully yours. If your employer accidentally pays you too much, though -- paying for more hours than you actually worked, for example, or paying at the wrong hourly rate -- the employer generally has a legal right to recoup the overpayment.
The U.S. Department of Labor's Wage and Hour Division, which administers the Fair Labor Standards Act, considers a wage overpayment to be an advance on the worker's future wages. As such, federal regulations allow employers to take money out of a worker's future paychecks to make up the overpayment. This is the case even if those deductions have the effect of dropping the worker's pay below minimum wage or cutting into overtime pay that ordinarily would be due under federal law.
Direct Deposit Reversals
According to the American Payroll Association, an employer that overpays an employee by direct deposit can reverse the payment within five days without notifying the employee. So if you were due to get $800 and your employer mistakenly deposited $1,000, it could reverse the entire $1,000 payment -- annulling the entire transaction -- within five days and deposit the correct $800. What the employer can't do, though, is dip into your account and take $200 out. No one can pull money out of your account like that without your authorization.
Written employment contracts, particularly for executives, sometimes include provisions that give the employer the right to demand repayment of money paid. These are referred to as "clawbacks." A clawback provision might require that an executive pay back money if he leaves the company to work for a competitor, discloses certain information or disparages the company. Whether such provisions are enforceable depends on how they're worded and the state laws that apply. One state may allow clawbacks for all pay, while another might allow it for bonuses but not base salary. Again, check your state's labor department for laws specific to your state.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.