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Accidental Overpayments - Can you deduct from their next pay?

If it has been identified that an employee has accidentally been overpaid for a period, are you able to get the amount in overpayment back by deducting this from the employee’s pay?

Employers need to be mindful that there are special rules regarding the deduction or withholding of monies from workers’ wages. In the case of an overpayment having occurred, unless otherwise provided for under an applicable award, in order to deduct any amount from an employee, you must ensure that written consent is provided by the employee.  

The only deductions that can legally be made from an employee are those pertaining to PAYG income tax deductions.

When notifying an employee of an overpayment having occurred, it is a recommended that it be explained to the employee that an administrative error has taken place in processing their pay. The employee should be further notified that their rate of pay will reflect the correct amount in future pay cycles.

It is often useful to point to the particular source of wage information applicable to them (e.g. modern award, enterprise agreement, contract of employment etc.) to assist in explaining the correct rate of pay.

Where the employee agrees for such a deduction to occur, both parties should discuss and agree on a repayment arrangement. A written agreement has to be made which sets out: 

  • the reason for the overpayment
  • the amount of money overpaid
  • the way repayments will be made (e.g. cash, cheque or electronic transfer) and how often (this has to be reasonable).

 

Where an employee does not consent to a deduction being made, legal advice should be obtained. 

If you require assistance with an overpayment recovery, please contact us on 1300 720 004 or advice@hradviceonline.com.au.

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