Overpayments are a common issue that many employers in Australia struggle with. Keeping track of staff payments and salaries can be challenging if you do not have access to expert help and support. In this guide, we discuss the overpayment of wages and the process of fixing this error for employers.
Overpayments
Overpayment of wages can happen when an employer:
- Mistakenly believes an employee is entitled to the pay.
- Because of a payroll error.
You can fix overpayments if you follow the due process. You can talk to your employee if an overpayment of wages has been made. An arrangement can be made about repayment and noted in writing.
Fixing overpayments
Getting your money back if you happen to overpay an employee is not always easy. Even if you made a simple clerical error, or misinterpreted an award or agreement, there is a legal process to follow.
You can deduct pay if an agreement, award, law, court order, or the Fair Work Commission (FWC) allows it. But if the deductions are for your benefit, they may be unlawful. If your employee then refuses to agree to repay the money, you will have to get a court order. The courts usually say recovery is available if you can show a mistake was made that led to overpayment. Recovery is not possible if the payment was intentionally made, or the employee has already used the money in good faith.
Your best option to get the money back is to make an arrangement acceptable to you and your employee where you deduct small amounts from their pay overtime. Always have a clear policy on overpayments in the employment contract and employee handbook, which says employees must report overpayments to their manager immediately.
If your employee agrees to repay the money, a written agreement should be made which sets out:
- Reason for overpayment.
- Amount of money overpaid.
- Way repayments will be made.
- Frequency of repayment (if agreed to repay in instalments)
Repayment amount
Once the employer has agreed to repay the overpayment, the repayment amount needs to be determined. The repayment amount is not necessarily the overpaid amount.
Repayment period
If you and the employee become aware of the overpayment within the same financial year, then the employee would repay the net pay. The net pay is the amount that the employee has actually received which does not include any withheld amounts for tax. The employee can decide to pay it in the same or next financial year.
If the overpayment is noticed in the following financial year, then the employee would repay the gross pay. The gross pay is the total amount that the employee has been paid, including withheld tax. If the repayment affects the income tax amount for any of the previous 2 years of the employee, then they can request an income tax return.
Managing payments and wages
Keeping track of payments and wages is crucial as it will help you avoid mistakes such as overpayments. Our team has supported thousands of business owners in Australia with wage information to ensure they correctly pay their employees. For free initial advice on wages and modern awards, contact the expert Peninsula team.
This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.