An overpayment of wages can happen for many reasons and is not uncommon. The good news is you are entitled to be repaid the money even if the overpayment was a result of your error. If the person is still employed with you then recovery is usually a fairly easy process and you can claw back the overpayment from their future pay. However, if the overpayment was to someone who has left your employment, you will need to follow a difference process.
The first step you should take is to contact your former employee to advise that an overpayment has occurred and they are required to pay the money back. You will need to set out the amount of the overpayment and exactly how the overpayment is calculated. It may be that you wish to do this by telephone but we would always recommend that you follow this up with a letter to ensure that the former employee has chance to consider the calculation of the overpayment and so that you have a clear paper trail should an amicable resolution not be possible.
Your letter should provide the following information in a clear, easy to understand format to avoid the need for protracted correspondence. As a guide your letter should include:
- The amount of the overpayment
- How the overpayment occurred (eg, miscalculation of holiday pay, a glitch in the payroll process, the former employee leaving within a period they had already received payment for, miscalculation of bonus, personal
expenditure on company business card, payment of a training course).
- A clear calculation of the overpayment
- Contact details of a person within your business which the former employee can contact to ask any
- A timeframe to contact you to discuss repayment
Can I demand immediate full payment?
Well technically, yes, but…..! If the overpayment was made as a result of your error then the receipt of the money was not within their control. Of course there is the argument that it may be obvious that an overpayment has occurred and they should not have spent the money. In some cases it may not have been clear and you will need to be reasonable and may need to come to an agreement for the money to be repaid in instalments. Even if it was obvious, you may still find yourself having to consider a reasonable repayment agreement.
I have done all this but I am being ignored. What next?
Unfortunately in some cases your former employee will take advantage of the overpayment and ignore your requests to pay back the money and hope that the situation will go away. The money is yours and should be repaid. The next step would be to escalate to a debt recovery company to send a Letter Before Claim (a formal demand for payment). Here at Legal Recoveries & Collections Limited, we deal with numerous overpayment of wages claims and we see that often the escalation to a third-party and the receipt of a Letter Before Claim results in full payment or an agreed payment arrangement.
If this is not the case, the next steps would be to issue a claim at court with a view to obtaining a County Court Judgment (CCJ). The cost of this is low and although payable by you in the first instance, most costs are added to the Judgment debt so can be reclaimed from your former employee.
A CCJ has serious consequences as it will remain on the Register of Judgment for 6 years unless it is paid in full within 30 days. This will severely impact their ability to obtain future credit and mortgages and may in some cases impact their employment as in some professions you are required to disclose this.
If you need any advice on collecting a debt from a former employee, please contact:
Penny Daisley, Lawyer & Head of Business Development.
Rachel Rowbotham, Operations Director