Labor Laws Concerning Salary Overpayments

By Adam Benjamin
Employee, payment records, boss, desk

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Taking more salary than you earned leaves your employer to consider options to get the money back. Financial consequences from overpayment last until the employer is repaid after a human resources manager makes a clerical error in tabulating hours or an employee forgets to tell a supervisor he took vacation hours. State laws allow the employer to take several approaches in resolving this matter.

Overpayment

The typical overpayment occurs because the employer unintentionally received too much pay for the period. Clerical and mathematical errors are common. An employee's failure to report changes in work hours, leave or vacation during the period can be missed by human resources. Any unintentional overpayments are counted against your future earnings.

Recovering the Overpayment

Usually, a simple error can be remedied without resorting to the law. The two sides can agree to a repayment plan. Any dispute you have to the claim of overpayment can be resolved by reviewing hours and dollar calculations. If you choose not to agree, your employer can ask you to pay the amounts back and even discipline you if you do not. As long as the person who talks to you stays clear of threatening job loss or earnings reductions, they can demand repayment without resorting to the law.

Wage Deductions

A wage deduction arrangement enables you to repay as you earn. You have this option for an agreed repayment plan. If you do not tell the employer it is not true that you were overpaid, typically, the employer can arrange to have payroll deduct amounts from your paycheck without your consent. Depending on state law, deducted amounts can total up to 10 percent to 25 percent of your earnings. They have to give a reasonable explanation and notify you before starting deductions. Your voiced dispute prevents the employer from taking your wages without resorting to legal action. In Indiana the overpayment law in Indiana Code 22-2-6-4 does not allow a wage deduction when you have disputed the overpayment amount. In Michigan Code Section 408.477, the law prohibits wage reductions without the employee's written consent.

Disputes

A dispute, if you choose not to settle, might end in the employer taking legal recourse. Texas' Payday Law requires a court order for a wage reduction when you have not given a written consent. Your employer can take your case to small claims court and file for a judgment to recover the money. If they win the case, you have to pay the amount back. When you failed to report working less hours than reported, the judgment could be demanding. A wage garnishment can be ordered against you.

Tax

The fact you take more pay than you earned does not mean you have to accept the federal income taxes on the overpayment as a penalty. The IRS allows you to take a deduction or claim a credit. For 2009, deductions from income are available for repayments of $3,000 or less. With a repayment charge above $3,000 you can choose either the deduction or a credit against tax.

About the Author

Adam Benjamin Pollack is a San Diego native dedicated to the great sentences on civil society. He authored the Subchapter S Report to tell legal news for the American Bankers Association. He holds a Juris Doctor from Indiana University and a Master of Public Policy from University of California, Berkeley.