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Jul16

Further Response to 7/13/10 Post “Overpayment”

Is there a way to recover an overpayment to an employee (or mulitple employees) if there was a “glitch” in the payroll system?

As an employee, would it seem resonable to return an overpayment?

Thank you! I am new to the HR field and consider this BLOG a “Daily Read!”

We want to note that your question refers to an overpayment in the state of California. This answer would be very different in most states. However, HR people semi-affectionately refer to your home state as *The Peoples Republic of California* for its myriad extremely pro-employee labor laws.

In most states if the employer makes a mistake and overpays an employee, the employer can simply deduct the overpayment from the next payroll check. This is not true in California. Basically, any payroll error the employer makes resulting in an overpayment is simply an unscheduled bonus to the employee. The employer is not allowed to make any deduction from future paychecks to recover the overpayment. So no, there is no legal way for you to compel these employees to pay back the overpayment.

The state regards such overpayments as an unintentional advance on future wages, and by statute a California employer is not allowed to deduct an advance from the payroll check.

You can certainly ask employees to return the overpayment. You can ask them to stand on their head while singing Yankee Doodle or to send valentines to the boss, too. But there is no reason why they should comply with such a request, and frankly, it is less than professional. You certainly cannot discipline an employee who refuses, or consider this factor in making future employment decisions.

In California, when an employer overpays an employee the employer absorbs the cost of the mistake. This is just part of the cost of doing business in the state.

You might be tempted to penalize the employee who made the mistake in the first place by docking her pay, but that would also be unlawful in California (and most other states.)

Thanks for the kind words! Also check out our sister site with the latest on HR news at http://blog.laborlawcenter.com.

Feel free to post as many questions as you like but please, for your sake and ours, mention that you are in California each time. It makes a huge difference!

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This entry was posted on Friday, July 16th, 2010 at 8:48 am and is filed under
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7 Responses to “Further Response to 7/13/10 Post “Overpayment””

  1. » Further Response to 7/13/10 Post “Overpayment” Human Resource Blog « Human Resources 123 Says:

    [...] » Further Response to 7/13/10 Post “Overpayment” Human Resource Blog Comments [...]

  2. Maria Rosin Says:

    Event if the overpayment is $20,000.00 in 5 months?????

  3. Caitlin Says:

    Hi Maria! Yes, even if the overpayment is $20,000 in 5 months, there is no way for the employer to recover it in California. State statutes specifically say that an overpayment or payroll error in the employees favor, made by the employer, cannot be recovered. Unless there was fraud by the employee, this money is simply gone.
    In a few cases, a very large overpayment was discovered immediately after transmitting a direct deposit, and was recovered before the transaction was finalized. We believe that in one case, the employer made an error of $100,000+ in transferring money into an employees account, and was able to reverse it seconds later. However, if these transactions have already been finalized, the money belongs to the employee under California law.
    However, for such a large sum, you may want to consult an attorney who specializes in employment law in California. HTH, and thanks for reading the blogs!~Caitlin

  4. Bill Says:

    Great post! Question, you said “…by statute a California employer is not allowed to deduct an advance from the payroll check.”

    And also:

    “In California, when an employer overpays an employee the employer absorbs the cost of the mistake. This is just part of the cost of doing business in the state.”.

    I see how an employer can’t deduct from pay, but once the employee no longer works there, can the employer sue the employee to get the money back? If so, what is the statutes of limitations on such action? Also, what if the employee resides in California, and the employer is out of state? Does it all fall under California law?

    Thanks!!

  5. hrlady Says:

    Hi Bill,
    Yes, an employer can sue an employee in an attempt to recoup overpaid wages. California requires that employers first contact the employee to request the return of the money. A letter sent to the employee via certified mail with a return receipt is recommended. Oral contracts have a statute of limitations of two years; whereas written contracts are four years. However, it’s recommended to seek advice from legal counsel prior to deciding not to file a claim that exceeds the statute of limitations since there are often variables that affect filing qualifications.
    The employment laws in the state in which the employee resides apply and, generally, claims must be filed in the court location closest to the defendant. However, there are exceptions to this rule and a small claims adviser can help determine the correct location to file suit. HTH!

  6. Bill Says:

    Thanks for the quick reply! So, what was meant when it was said above: “In California, when an employer overpays an employee the employer absorbs the cost of the mistake. This is just part of the cost of doing business in the state.”

  7. hrlady Says:

    You’re welcome! The statement was in regards to employers in California not being able to deduct overpayments from employees’ paychecks. Since the overpayment can’t be recouped through normal business transactions, i.e. deducted from a paycheck, the cost of the mistake is essentially absorbed by the employer. The employer’s only recourse, if the employee refuses to repay the money, is to sue the employee.

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