As a matter of good practice, however, even in the absence of any express contractual provision requiring the employer to approach the recovery of any overpayment in a particular way, employers should notify the overpaid employee prior to making any deductions and, in some cases, the parties may even be able to reach an agreement in the form of a repayment plan. Correct but we need to bear in mind here that this isnt the employees fault, they may not have noticed the overpayment (we will come on to the issue of employees failing to disclose an overpayment shortly) and you are best advised to discuss the matter with them and agree a repayment plan so as not to plunge them into financial hardship. Where do we stand in terms of making deductions? An employer is legally entitled to recover any overpayment of wages, either during the currency of the contract of employment, as well as after the employees contract has come to an end. Tips to Prevent Overpaying Employees. Where an individual has left the company, it will be important to assess the merit of the case and evidence to support recovery, while ensuring communications are clear and effective to bring the matter to a satisfactory conclusion. ), Public employers may contend that Social Services Union v. Board of Supervisors (Social Services) (1990) 222 Cal.App.3d 279 supports their position. Other payroll periods such as weekly, biweekly (every two . Rather, whatever amount was paid in excess of the salary earned becomes a debt the employee owes the employer. Find the latest news and members-only resources that can help employers navigate in an uncertain economy. Equally, an employee may owe the employer money for something else, for example, a loan to cover the cost of a travel season ticket, or even for contractual maternity pay, where there is often express contractual provision about returning to work for a certain period of time after taking maternity leave. Employers have the right to collect overpayments from employees. Employment Law Reporter, Ervin Cohen & Jessup LLP. While deduction of the debt from a subsequent wage payment is permitted with the employee's freely-given written agreement, the employer must be sure that the paycheck provides the worker at least the minimum wage for each hour worked. This could even include suggesting alternative ways in which the employee can repay the amount owed, for example, by working extra shifts or staying later each day. (3)The adjustment of appropriate leave credits or compensating time off, provided that the overpayment involves the accrual or crediting of leave credits (e.g., vacation, annual leave, or holiday) or compensating time off. $('.container-footer').first().hide();
You specifically ask two questions: (1) What is the law when an employer overpays an employee; and (2) What is the enforcement policy of DLSE with respect to recovery of the overpayments. However, it is lawful to base a bonus formula on a retail store's profits, which would include business losses, such as those from breakage or theft. The overpayment recovery process begins when an overpayment is reported through one of the following actions: An employee identifies a potential overpayment and reports it to their Manager, HR, or Payroll In addition, there have been several court decisions that significantly restrict an employer's ability to take an offset against an employee's wages. You are legally able to do this but time is of the essence, so act quickly. For more information on the appeals process, visit California Unemployment Insurance Appeals Board. However, as you note, the employer can sue the employee to get its money back. In this situation though, it is advisable to try and work something out to minimise any financial hardship as much as possible by perhaps making the deduction in instalments rather than in one go. Get the DM Business Newsletter & Invitations to our Events. Out of these cookies, the cookies that are categorised as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. b. In particular, in circumstances where an employee no longer works for the employer, the employer will no longer have the option to make a direct deduction from the employees wages. If an employee quits with less than 72 hours notice, the employer must pay on the last day of work everything the employee has earned within 72 hours of the date of departure. However, the law puts conditions on this type of arrangement. Rains Lucia Stern St. Phalle & Silver, PC publishes this website as a service to our clients and other friends for informational purposes only. Specifically, periodic deductions from wages authorized in writing by an employee to recoup predictable, expected overpayments that occur as a consequence of the employers payroll practices dont violate California law. Labor Code 221 is the California statute that forbids employers from taking back any wages that have already been paid to an employee. Please quote your Client Account Numberon all correspondence and telephone calls. If they do so, the employee can file a lawsuit against them. Necessary cookies are absolutely essential for the website to function properly. The DLSE based its opinion on Labor Code section 203, which requires full payment of wages when an employee is discharged or quits. Similarly, employers may recoup overpaid commissions in certain situations, such as if the merchandise is returned. In this way, both parties will be clear as to the reason for the overpayment and exactly what will need to be repaid in due course. You must respond to the notice within 15 days so we can make the correct determination. Section 5 states: An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued. what can you do? Employer commission or incentive plans sometimes authorize employers to make certain deductions. 800-727-5257, Deductions for Wage Overpayments in California: Strict Rules Apply. Labor Code Section 2802, f. Medical or Physical Examinations. Some pay stub violations can be corrected by an employer without having to pay penalties. Required or "empowered" by state or federal law. However, cautioned the DLSE, an employees submitted timesheet, whether paper or electronic, doesnt amount to written authorization for this type of deduction unless the timesheet expressly and voluntarily authorizes a specific prospective deduction.. About the authors Under the California Labor Code, California employers can deduct sums from an employees' paycheck for payroll overpayments only with the written consent of the employee. How does this mesh with a voluntary agreement to deduct overpayments from a worker's paycheck? The best thing to do is to discuss the matter with the employee and hopefully agree a repayment plan. Absent mutual agreement on a method of reimbursement, the state shall proceed with recoupment in the manner set forth in paragraph (2). We also use third-party cookies that help us analyze and understand how you use this website. (b)An employee who is separated from employment prior to full repayment of the amount owed shall have withheld from any money owing the employee upon separation an amount sufficient to provide full repayment. Berkeley's Boalt Hall. The DLSE, however, stressed the following points and cautions: 1. Check the employees contract of employment for any express provision relating to the manner in which recovery of any overpayment must be handled. Photographs. include those situations where overpayments of wages have been made to employees. However, this issue can be further complicated by language in an MOU which purports to grant the employer the ability to unilaterally deduct from an employees paycheck. Depending on how your direct deposit authorization form is worded, that may give the employee's consent to a reversal. However, a one-off overpayment of a sum of money which is small (relative to the employees salary) may legitimately go unnoticed. Wage deductions in California are regulated by numerous court decisions and labor code, which stipulates that it is unlawful for an employer to collect or receive any part of . As with any overpayment for wages, it is always best for an employer to first consult with the employee to clarify the extent of any outstanding monies, and to agree a sensible way forward. Paid Family Leave: 1-877-238-4373. If you have not provided written confirmation of the overpayment, the employee is likely to request a full breakdown of what is owed, including dates and amounts. BLR, a division of Simplify Compliance LLC, Copyright 2023 Business & Legal Resources. For example, in New York, you can only deduct from an employee's pay for the recovery of overpayments of wages when it's due to a mathematical or clerical error. In reaching its decision, the court cited to Labor Code section 224 which, according to that court, expressly authorizes agreements between public employees and their employers for the payment of health care costs through payroll deductions. (Id. It's not hard to conceive of a scenario in which an employee's paycheck contains more money than is owed for their work that pay period. at p. Failure to do so exposes the employer to significant fines and penalties, including one day's pay at the employee's normal daily wage for each day the worker must wait for their final wages. The term "uniform" includes wearing apparel and accessories of distinctive design and color. Note: You cannot request a waiver if we did not mail you the Notice of Potential Overpayment (DE 1447) with a Personal Financial Statement. Jennifer Shaw is an attorney with Shaw Law Group in Sacramento, Calif. You have successfully saved this page as a bookmark. Here are five key points that employers should understand. For example, an employee is accidentally paid double their rate of pay or they are paid twice, the argument that an employee could legitimately have thought they were entitled to this sum does not apply. if(currentUrl.indexOf("/about-shrm/pages/shrm-china.aspx") > -1) {
The minimum wage in California is listed as an hourly amount, but it also applies to workers who are paid a regular salary, calculated at the hourly minimum wage times the number of hours worked monthly. Instead they have a duty to bring the overpayment to their employers attention immediately; to simply keep quiet and hope no-one will notice is not acceptable. Please log in as a SHRM member before saving bookmarks. If employees do not agree to repay such debts, employers may pursue legal action against the employee. As such, it is always advisable for an employer to seek to negotiate a flexible repayment plan, ensuring that some or all of the overpayment is recovered on an agreed basis. Similarly, employers may not make employees the "insurer" of business losses. By clicking Accept, you consent to the use of ALL the cookies. When the economy is unstable, employers are faced with difficult decisions around staffing, pay and benefits. We will review your information to determine if repaying the overpayment would cause you extraordinary hardship. Where there is a mistaken overpayment, an employer is sometimes entitled to recoup an overpayment by making deductions from future wages payable, but it must abide by the specific requirements applicable to each province and territory. Overpayments are classified as either fraud or non-fraud. In theory, the employer is not even required to inform an employee that these deductions will be made. In the case of an overpayment of wages, the employee is legally obligated to repay the amount in excess of what was owed, but employers have to be very careful about using self-help methods to reclaim the money. Put simply, no. By way of example, the employer may have funded the cost of training to help an employee qualify for a promotion during the course of their employment, albeit conditional upon the employee remaining in their newly promoted role for a specified period of time thereafter. (d)An administrative action shall not be taken by the state pursuant to this section to recover an overpayment unless the action is initiated within three years from the date of overpayment. If an employer overpays an employee, it cannot deduct the overpayment from the employee's check without the employee's written authorization. However, employers should exercise extreme caution when seeking to deduct any outstanding debts from an employees final wages, as any incorrect calculations could be classed as an unauthorised deduction for which the employee can bring a claim in the employment tribunal. Where the individual is still employed, the aim will be to maintain positive relationships without causing financial hardship or distress. If an employer issues a paycheck for less than the amount earned, the employee is likely to notice and demand a corrected check. However, as the Public Employee Relations Board (PERB) explained in Berkeley Council of Classified Employees v. Berkeley Unified School District (Berkeley Council) (2012) PERB Decision No. What will constitute a reasonable rate of recovery will depend on the circumstances, where one single repayment may be acceptable for a relatively small overpayment, but not for larger sums. Overpayments to employees; Reimbursement; Recoupment. By way of example, where an employee has failed to pay off a travel season ticket prior to handing in their notice but had previously signed an agreement to say they would pay back any shortfall, the employer would be well within their rights to seek recovery of any outstanding amount. , stressed the following points and cautions: 1 employer commission or plans! 'S paycheck without having to pay penalties successfully saved this page as a bookmark ; Jessup LLP California Insurance. Include those situations where overpayments of wages have been made to employees this website to an employee is to..., you consent to the manner in which recovery of any overpayment must be handled paycheck! Is an attorney with Shaw Law Group in Sacramento, Calif. you have successfully saved page! Dlse based its opinion on labor Code section 2802, f. Medical or Physical Examinations one-off overpayment of sum. 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