Overpaying employees is common in organizations with great workforces and companies without any proper built-up payroll plan. In case of payroll overpayment errors, it’s important the organizations take the necessary steps to rectify the situation.

Although according to the Fair Labor Act, employers can recoup the overpaid amount by adjusting the next paycheck without any authorization, how they can regain the amount differs in different states.

Employers must remember to follow and comply with federal laws, so as to avoid any complications and penalties. This includes the payroll tax laws since the amount overpaid at times could already be included in the tax reports.

Here are some legal and lawful ways for employers to correct their mistakes and regain the overpaid amount.

1. Payroll Deduction

Payroll overpayments happen due to technical errors from the employer or maybe the employee failed to report the accurate hours of work and vacation. Either way, employers can recoup the amount by deducting it from employee paychecks; federal and state laws allow this. Though you must remember that not all state laws are the same, hence it is important to familiarize yourself with the current laws of your state.

Some states allow the deduction of overpaid amounts from future paychecks without any written authorization, though they still have to inform the employees before making the deduction. Other states, don’t allow this. In some states, there is a limited amount for paycheck deductions. Therefore for significant overpaid amounts, employers are required to distribute the amount evenly in future paychecks and deduct no more.

2. Authorization

Things can get trickier if the state laws prohibit deductions, which would make it difficult to regain the overpaid amount. For such cases, employers are required to get written consent and authorization from the employee for the deduction of the overpaid amount.

Employers can also take the deduction consent document during the employee’s joining procedures, indicating the deduction authorization for any future payroll overpayment. This would save the time for getting consent for every overpayment and also a clean sheet for state laws.

3. Voluntary Repayment

A simple way to regain the overpaid amount is for employees to sign a repayment plan. This is a written agreement between employers and employees to recoup the overpaid amount through paycheck deductions. Some states allow this.

Final Words

In states where payroll deductions are prohibited for overpayment, and employees do not consent to their overpaid amounts, employers can legally sue employees in small claims court. If proven to have overpaid employees, the amount can be regained.