Overpayments can happen when an employer mistakenly believes an employee is entitled to the pay or because of a payroll error.
Employers can’t take money out of an employee’s pay to fix up a mistake or overpayment. Instead, the employer and employee should discuss and agree on a repayment arrangement. If the employee agrees to repay the money, a written agreement has to be made and has to set out:
- the reason for the overpayment
- the amount of money overpaid
- the way repayments will be made (eg. cash, cheque or electronic transfer) and how often (this has to be reasonable).
If the repayment can’t be agreed an employer should get legal advice.
A deduction can be made to get back an overpayment if it’s allowed under a registered agreement, award, legislation or court order.
Example: How to pay back an overpayment
Tony was overpaid $2000 over 3 years because of a payroll error. His award does not allow a deduction to be made when an employee is overpaid.
Tony and his employer, Alice, meet to discuss the overpayment. Tony agrees to repay the money and they come up with a solution.
Alice says Tony can choose how the money is paid back and the amount and frequency of the payments. Tony tells Alice that he’d prefer if $20 was deducted from his pay each week until the $2000 is repaid. This arrangement is put in writing and both sign.
This repayment is reasonable because Tony had a choice about how the money was paid back, and the amount and frequency of each payment.
Best practice tips
- Check your award or agreement to find out when deductions can be made.
- Employers and employees should talk to each other if an overpayment has been made, then come to an agreement about repayment and put this in writing.