Recovering overpaid wages from former employee

jonathon · PayPerShop Newbie Joined: 28 Jun 2008 Posts: 1

Hi

I recently started in a new management position. Several months into the job and I have encountered a problem with an employee who has left our organisation. In a nutshell:

1) He gave his months notice & left without any problems. We processed him off of our payroll system & gave him his final wage slip/P45 etc. Everything was fine until we realised that we had made an administrative mistake in our payroll system and continued paying him after his employment had ended. He was paid his usual monthly salary for the month after he had left.

2) We wrote to him to advise of the administrative mistake and request he contact us to discuss repayment. We were quite happy to allow him to pay back the amount over time etc & ensure that the repayment arrangement would be manageable by him.

3) He has contacted us and advised that he does not intend to acknowledge liability to pay back the money and won't be doing so. He appears to have done some research and actually gave me a link to a page on this site (http://www.paypershop.com/faq/overpaid.html). His argument is that he does not believe a county court will find him liable for the debt as there is no provision in his employment contract regarding him having to repay any overpayments of wages after the end of his employment.

4) I checked his contract & it appears that he is right. It seems many of our staff have employment contracts which are fairly "old style" (something I hadn't noticed being new to the job). There are no clauses in his contract regarding the repayment of any debts he may owe to the organisation after he leaves our employment, whether they be wage overpayments, training costs etc.

I am not entirely sure what to do. If we were to make a civil claim then I think we could fairly argue the point of unjust enrichment on his part - he is fully aware that the overpayment is a mistake and acknowledges this.

However, if we make a civil claim, shouldn't we expect the county court to process it as a matter of contract law - in which case we would be in the "wrong" as he is not contractually obliged to repay the money?

I am also unsure as to whether we can consider the debt to actually be an "overpayment" in the normal sense. I have read the page he referred to on this site and the section on overpaid wages for former employees seems to refer to overpayments that occurred during employment that an employer attempts to collect post-employment. Since this payment occurred after his employment had ended does it still count as an overpayment in the sense that the outcome of a claim would be based on his contractual obligations as implied in the article?

I'd much appreciate any advice you could give me.

Ian Whyteside

Jonathon,

I think you have read the sitution very well. The item Ian has on the site is about overpayments occuring during employment which the employer attempts to recover post termination or at least from final payments.

It is not impossible to make recovery but the problem occurs when the employer wants to make an automatic deduction from the final salary/wage due and if the contract does not allow for it then it becomes unlawful.

A similar situation occurs with loans. I have noticed over the years that loan agreements between employer and employee are always very good at clarifying the recovery of instalments from pay but are very often silent on the subject of what to do with a balance outstanding when the employee leaves, almost as if the employer assumes that no employee would ever leave whilst a loan was current!

In this case both the payment and the attempted recovery are post termination and whilst this is not necessarily an easy situation to deal with I feel it can be done fairly simply.

My advice, issue an invoice for the outstanding sum, net of course, give him 14 days to pay, then send a reminder, final reminder and then issue court papers. The county court will ask for evidence that the debt occured and that no payment was made to clear it.

I really do not think any court will find in his favour and I can tell you it has never happened with me!

Ian Whyteside

apserve · PayPerShop Newbie Joined: 23 Apr 2008 Posts: 21

Ian,

This is a classic example of what I have written about earlier with regards to recovering tax and ni from overpayments - even if the recipient has not yet paid back the net debt.

As the payment was, in your own words, post termination - it cannot be regarded as contractual nor by reason of employment. Therefore tax and ni have been charged on a gross amount in error.

In a case like this I would not hesitate to reverse the gross payment debitting PAYE with the amount of tax, ees and ers ni paid on the original payment and creating a debit for the net amount for which I would issue an invoice.

Apserve

Ian Whyteside · Posted: Thu Jul 10, 2008 8:09 pm Post subject: Recovery of overpayments

Well, you can see that in all cases we advocate the recovery of the net amount, whatever the circumstances, however, you reverse the tax and NIC and claw the funds back at your peril because if you are not successful in recovering the amount then you would merely have to re reverse the whole thing or face significant penalties.

If it was true that you could avoid tax and nic on sums that are not lawful wages and salaries then the answer is simple, agree a salary of �6,500 a year to cover the basic NIC and tax thresholds, pay them an additional �50,000 a year out of the kindness of your heart and declare the excess non taxable by virtue of the fact that it is not a lawful salary payment and is non contractual.

I cant see the revenue accepting that one.

Ian Whyteside

apserve · PayPerShop Newbie Joined: 23 Apr 2008 Posts: 21

Of course they would not, but I still wait to see where HMRC has legislated the fact that one must recover the net amount before the wrongly deducted tax and ni can be recovered.