Generally, 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 with the understanding 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 New York with a New York lawyer.
Employer overpayment may 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 the type of overpayment that was made, 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 rules explained below. Clearly, if the overpayment was made in a final paycheck, the employer cannot make deductions to recover the overpayment. They would have to use other legal procedures.
Do You Have To Pay Back an Overpayment in New York?
If an overpayment is due to a clerical or mathematical error on the part of the employer, the employer must have specific procedures in place to make the recovery through deduction from a future paycheck legal. If all the requirements of New York law are not satisfied, a future wage deduction might be illegal. The employer could have to answer in civil or even criminal penalty.
In New York, employee law only permits paycheck deductions for overpaid wages that result from “a mathematical or other clerical error by the employer.”
Employers can only use paycheck deductions to recover overpayments made within the 8 weeks prior to the overpayment. Only one deduction can be made per pay period, however, the deductions can be made for as long as 6 years if necessary to fully recover the full amount of the overpayment.
Federal labor laws also sanction employers garnishing the subsequent wages of an employee in a situation such as this to recover an overpayment. The employer may deduct any overpayment made to an employee from one of the employee’s subsequent paychecks. Federal law allows this. Under federal law, the employer does not even have to give the employee notice of the coming deduction and federal law does not impose other limitations.
If the overpayment was less than or equal to the net wages earned after all other deductions allowed by law in the next wage payment, the employer may still deduct the entire amount in that next wage payment.
However, if the amount of the overpayment is more than the full net wages after deductions in the next wage payment, then the overpayment deduction may not exceed 12.5% of the gross wages earned in that wage payment. If this is the case, the overpayment deduction cannot reduce the employee’s hourly wage to an amount that is less than the minimum wage.
An employer has to give the employee notice making a deduction to recover overpaid wages. The notice must state the total amount overpayment, broken down by pay period. It must also show the total amount of the deductions that the employer plans to make to recover the overpayment and the proposed date and amount of each deduction.
The notice must also tell the employee that they may challenge the overpayment deduction, including any deadline and the procedure for filing the challenge. If the entire amount is to be recovered in the next paycheck, then the employer must notify the employee at least 3 days before the deduction. In all other cases, the employer must issue this notice at least 3 weeks before the deduction can start.
There are a number of detailed requirements regarding procedures for challenging overpayment deductions and for responding to them with which an employer wants to be familiar. All notices may be in writing or by electronic means, such as email. Employers must use plain language in text that is at least 12-point font in size.
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 they were paid the minimum wage for a pay period.
For employees whose wages are low, a deduction might cause the employee financial hardship, so working with the employee to plan deductions to compensate for the overpayment could be helpful to the employee.
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).
New York labor laws offer a higher degree of protection to employees who have been overpaid. As noted above, in New York, the law imposes more stringent requirements on an employer.
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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.
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 New York 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 New York, while the employer has the right to recover an overpayment, they notify the employee and could also work with them to figure out a repayment plan, although this is not legally required.
Both New York 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 New York 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 New York?
If your employer has informed you that you have been paid too much and need to return the funds, you want to consult a New York employment lawyer. LegalMatch.com can quickly connect you to a lawyer who can explain New York law to you. Your lawyer can negotiate a fair resolution of the problem with your employer. Then 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 New York 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 complies with New York law and respects employee’s rights as well.
