There are a number of situations in which an employee who was overpaid may be required to return the money to their employer. For example, an employer may pay a hiring bonus to a new employee on the basis that the employee will stay with the employer for an agreed-upon period of time.
If the employee were to quit before the period of time has expired, the employer may think that the employee did not keep their end of the bargain.
The employer might ask the employee to return the hiring bonus. If the worker refuses, the boss may sue the employee for breach of contract. An employee whose employer asks for the return of a hiring bonus or other performance bonus might want a legal consultation in California with a California lawyer.
Overpayments arise from a number of situations. An employer or its payroll service may make a simple mistake in calculating hours worked and/or wages owed per hour. Or they might incorrectly calculate the many deductions for taxes, social security, and the like that employers must withhold from paychecks. A computer that calculates and issues paychecks might malfunction.
Whatever the cause, of course, an employer wants to correct a payroll overpayment as soon as possible to avoid expense and complication later on. An employee does have to return an overpayment they received from their employer, subject to certain rules regarding notice and the method of repayment. Even if the employee quits after the overpayment is made, the overpayment must still be returned subject to certain California rules explained below.
Do You Have To Pay Back an Overpayment in California?
If an employer’s payroll service mistakenly cuts a paycheck or a check for any other lump sum that is more than what is owed to an employee for wages and/or bonuses, then yes, the employee must return the money to the employer.
Both state and federal labor laws give employers the right to garnish the subsequent wages of an employee in a situation such as this to recover the overpayment. The employer may deduct any overpayment made to an employee from one of their subsequent paychecks. Federal law allows this. California state law allows this. Under federal law, the employer does not even have to give the employee notice of the coming deduction.
Under California law, the employer would have to notify the employee and get the employee’s authorization to deduct the overpayment.
And if one thinks about it, arguably, the employer should be able to recover money it paid in error to which the employee is not entitled. On the other hand, some might think it is unfair insofar as a deduction for a past overpayment can bring an employee’s subsequent paycheck to less than what they would be owed if paid the minimum wage for a pay period.
Nonetheless, the Wage and Hour Division of the federal Department of Labor has published an opinion stating that any overpayment, whether it is a loan, an advance or a simple mistake, may be deducted from the employee’s subsequent earnings. This is the case even if the payroll deduction means that the employee is paid less than the minimum wage or essentially misses overtime due to them for that pay period under the Fair Labor Standards Act (FLSA).
California labor laws offer some degree of protection to employees who have been overpaid. As noted above, In California, an employer can only recover money that was paid even when it was not owed, if the worker signs a written agreement that specifies the exact terms of repayment. So, in other words, the employee must agree to a plan in which they would return the overpaid amount to the employer.
If the worker refuses to accept any plan, then the employer may file a lawsuit and initiate an action to garnish the employee’s wages in order to recover the overpayment. Even if the employer proves that the worker was overpaid, the employer may not reduce an employee’s wages below minimum wage in California.
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Can Your Employer Deduct the Overpayment From Your Final Paycheck?
If an employee has been paid more than they are owed by their employer, the employer would be able to deduct the amount of the overpayment from the employee’s final paycheck.
In fact, even if the employee has left the company and moved on, the former employer has the right to reclaim their overpaid money. However, it might prove difficult to locate the employee.
An employer has 3 years from the date of the overpayment to seek its return through legal action In California.
In order to avoid disputes or to avoid missing the opportunity to obtain return of overpaid funds, an employer might want to approach the problem in ways that are not required by law, but may produce better results than wage garnishment.
An employer may always notify an employee as soon as they discover the overpayment, giving them details about the amount of the excess payment and why it happened. The employer can then discuss the issue with the employee and negotiate a repayment plan. If the employee’s salary or wage payment is ample enough, the employee might be willing to agree to return the entire sum owed from their next paycheck.
If not, the employer and employee could work out an installment plan for the repayment that does not impose an unreasonable hardship on the employee.
While federal and California labor laws may not require it, the employer might want to explain how the overpayment was miscalculated and what the options are for repayment. Again, in California, while the employer has the right to recover an overpayment, they notify the employee and work with them to figure out a repayment plan.
Both California law and the FLSA do protect an employee from being treated unfairly or from retaliation while an employer’s recovery of an overpayment is worked out between an employer and an employee.
An employer might also want to take steps to avoid overpayments. They may want to put processes in place to check and double-check payroll calculations before paychecks are issued. They might want to upgrade their automated payroll software to one that has built-in error detection.
They want to make sure that their payroll staff are trained to identify and fix payment mistakes. They want to have policies and procedures in place for dealing with overpayments and making sure that both federal and California labor laws are respected. An employer should conduct regular payroll audits so that errors are detected quickly and corrected by such means as filing a W-2c or W-3c for payroll overpayments.
Do I Need a Lawyer for Help With Payroll Deduction Issues in California?
If your employer has informed you that you have been paid too much and need to return the funds, you want to consult a California employment lawyer. LegalMatch.com can quickly connect you to a lawyer who can explain California law on this subject to you. Your lawyer can negotiate a fair resolution of the problem with your employer so that you can repay the amount owed in a way that is financially manageable for you.
If you are an employer who has mistakenly made overpayments, you too want to talk to a California employment lawyer. Your lawyer can advise you as to how best to approach employees and work with them to get the overpayments to which you are entitled in a way that respects their rights as well.
