Processing payroll can prove difficult if you have employees whose working hours change from one week to the next or if you decide to change the hourly rate of pay during a pay cycle. Aside from problems caused by miscalculations, simple clerical errors can sometimes lead to employees being overpaid. In most instances, you have the right to recoup overpayments, but laws on recovering wages vary from state to state.
The first step in recovering an overpayment of wages usually involves notifying the employee that the payment error occurred. Some employees may notice the overpayment and tell you about it before you detect it, while others may fail to notice it or choose to accept the money without remark. Aside from being courteous to your employees, you should make them aware of overpayments because state laws require you to provide notice before making an attempt to recoup the funds. You must maintain payroll records so you have documentary evidence to back up your claim. You could run into legal issues if you try to reclaim wages when you have no evidence that the overpayment occurred.
In some states, such as Indiana, you can deduct money from your employee's next paycheck to recover an overpayment of wages. You do not have to obtain the employee's consent, but you do have to give the employee two weeks advance notice. Furthermore, deduction amounts are capped on a per-paycheck basis, so you may have to recoup a major overpayment across a series of paychecks. In Maine, if an employer overpays an employee by less than 15 percent, the employer can withhold no more than 10 percent of each subsequent paycheck during the recovery process. However, if the employee knowingly accepted the overpayment or it exceeded 15 percent of your regular payroll, the employer can demand full repayment via direct deposit or a check.
In some states, such as Oregon and Washington, you cannot simply deduct from future paychecks without reaching an agreement with your employee on the best way to recoup the funds. In Washington, an employee must consent to a payroll deduction, although an employee can also repay the money with a check. In Oregon, no laws exist that cover the procedure for recovering the overpayment of wages, but if an employee refuses to repay the money, you can sue the employee. In Washington, you can refer an employee to a collection agency or take him to court if he refuses refuse to repay the money. Texas law does not expressly cover the topic of recovering overpayments, so employers typically obtain an employee's consent before deducting from future wage checks.
As an employer, you have to abide by federal and state minimum wage laws. You cannot deduct from an employee's paycheck if the overpayment deduction results in an hourly rate below the minimum wage, although some employees are exempt from minimum wage laws.
In some states, such as Washington, you can recover not just the overpayment of wages but you can also charge interest if the employee fails to repay the money within 30 days of a request for payment. Therefore, an overpayment of wages could ultimately prove more costly to an employee than an employer.