Be careful! It’s not as simple as saying to your employee “I overpaid you $500 and now I will deduct $500 from your next pay”.
Deducting an overpayment from the following pay period is not only illegal, but can create tax and super complications.
So what are the necessary steps to recoup the overpayment made in error?
Communicate – explain the scenario, apologise for any inconvenience caused.
Check the date – is the overpayment in your current financial year?
If yes, the employee only needs to repay the net amount of the overpayment.
If no (you found out in July this happened in May), the company is to recoup the gross amount. The employee may even need to resubmit their tax return to recoup the tax portion of the overpayment.
Get everything in writing – Company to employee explanation, then employee response in agreeance.
Make an agreement with the employee about how much they’re pay back and over what period of time.
Employee return the cash in a payment direct to employer, separate from payroll – similar to a reimbursement.
Make any adjustments in the payroll that are required.
In the event that your employee does not cooperate, which they’re entirely able to do, you need to go through the normal process of debt recovery as you would with anyone who owes you money.
Does your business require assistance automating payroll or having HR help on hand? Send us an email! hello@epsoffice.com.au
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