The options for employers after discovering employee overpayments can be very confusing. Before you decide whether to notify the employee by letter, email, or by far the most dreaded method, the awkward phone call, you need to know what your rights and responsibilities are when it comes to recovery of the funds.
As nice as it would be to just be able to say “here’s what you owe and here’s how you’re paying it back”, it’s rarely that easy. Before repayments can begin, the employer and employee must sign a written agreement which details the reason for the overpayment, the amount overpaid and method and frequency by which the repayments will be made. So before you sit down with the employee to talk terms, start by doing a little homework on the rights of the employer – and employee – in this situation.
To decide whether you are legally entitled to withhold the amount from the employee’s earnings, begin with a search on the word ‘deduction’ in the applicable award or agreement. They will all contain descriptions of how deductions are to be managed, with some containing a clause directly relating to the recovery of overpayments. For example the Maritime Offshore Oil and Gas Award 2010 states in clause 15.2 ‘An employer may deduct from any amount required to be paid to an employee under this clause the amount of any overpayment of wages or allowances.’ Many awards, however, do not set the terms out nearly as simply as this one does.
The next reference point to consult is section 324 of The Fair Work Act. It sets out the following legal framework for a deduction from an employee’s earnings to occur:
- The deduction is authorised in writing by the employee and is principally for the employee’s benefit; or
- The deduction is authorised by the employee in accordance with an enterprise agreement; or
- The deduction is authorised by or under a modern award or an FWC order; or
- The deduction is authorised by or under a law of the Commonwealth, a State or a Territory, or an order of a court
If the deduction is not authorised by a court order, a law or an award / agreement, the employee must agree in writing to the deduction being made. They must be able to nominate both the frequency and the amount that will be repaid, as well as whether the repayments are to be made as deductions or by cash, cheque or electronic transfer. Then once an agreement is reached, the written terms are to be signed by both parties.
Talk to your employee and discuss the available options with them. Let them know what their options are and what choices they have. However, if you have tried all of this and discussions break down before an agreement is reached, the next step in the process will be to seek legal advice.
Approaching the negotiation process with all of your information already at hand will hopefully make this difficult discussion less stressful for all involved.