Mistakes happen, even with sophisticated corporate payroll systems. This can involve duplicate wage payments, paying an employee for unpaid time away from work, or other genuine errors. When employers discover these mistakes, they may not understand the legality of recouping these payments from the overpaid employees.
Deductions from wages are generally a matter of state law. In most states, employers can only deduct non-mandatory amounts from employee pay without advance written authorization. However, most states carve out an exception from this authorization requirement for wage advances. Accidental overpayments are considered a form of wage advancement, and employers may deduct these amounts from future employee pay without the employee’s authorization.
Before deducting these amounts, employers should consider several additional factors. First, if the deduction involves a large sum, the employer may want to recoup the overpayment through several payroll cycles in order to minimize any hardship on the employee. Second, federal and state minimum wage laws may restrict the total amount deducted for any given pay period.
Employers are sometimes surprised to learn that they do not need employee authorization to correct genuine payroll mistakes. While these mistakes can result in employee relations issues surrounding the repayment, most states give employers significant discretion to determine the best way to correct these errors.
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