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If your employer overpaid you for a particular pay period, it’s likely the result of a payroll calculation error in your gross or net income. An error in gross earnings may occur from inaccurate pay rates or incorrect entry of work hours. A mistake in net earnings may happen when a voluntary deduction is not made or calculated correctly. You can take certain actions in either situation.
Once you’re aware of the overpayment, notify your employer promptly. If you had to make him aware of the error, he likely doesn’t know he overpaid you. In due time, he probably will discover it. Therefore, it’s best to be honest from the start if you were overpaid. The state might have laws on how employers are supposed to recover overpayment. In many cases, an employee may repay her employer in installments via payroll deduction. This method is particularly effective if you have already spent the overpayment and the amount was a large sum.
The way your employer must legally perform an overpayment via paycheck deduction varies by state. For example, in Colorado, as of the time of publication, if an employee’s gross overpayment is 20.10 to 40 percent of his gross monthly salary or biweekly wages, an employer may deduct the overpayment equally over the following two paychecks. By contrast, in Maine, an employer may not deduct more than 10 percent of the overpayment without the employee’s written consent. If the overpayment is less than 15 percent of the employee’s regular take-home pay and if no arrangement was set up with the employee, an employer may withhold no more than 15 percent of the employee’s regular pay, reports the website Maine.gov. You may have to sign a paycheck deduction form showing amounts to be deducted from your paychecks. In some cases, email communication regarding the overpayment and its recovery can suffice.
Pay Full Amount
If you’re able to repay the full amount in one payment, do so. That way you don't have to deal with your paycheck being deducted each time you are paid until the debt is paid off. Your employer will let you know the payment types she accepts, whether personal check, money order or cash. Unless you are physically handing over cash payments to your employer, it’s best to avoid this payment type.
Your employer should fix your payroll records to reflect the repayment. For example, if you were overpaid by 10 overtime hours, your employer should deduct the 10 hours and the associated overtime wages from your year-to-date earnings. This step is particularly important for income tax purposes, as neglecting to adjust wages and hours can make your W-2 incorrect.
The state normally does not allow an employer to make deductions if they cause the employee’s wages to fall below the required minimum wage. Also, laws for recovering overpayment from a terminated worker’s final paycheck vary by state. Some states allow the employer to deduct the full amount owed, while others limit the deduction to the agreed-upon installment payment.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.