Employer overpays employees, what now? How are challenges of erroneously overpaying employees addressed
The issue of erroneously overpaying employees is usually found in the public sector but more inquiries are rapidly coming from the private sector and employers don’t know how to deal with this situation.
- BCEA section 34(1)
- BCEA section 34(5)
Payroll and HR Personnel are also human beings and make mistakes, especially with these new complicated and not so user-friendly payroll systems.
Some of these mistakes may lead to big financial implications for the organisation, due to overpayment of salaries/wages.
These overpayments can happen for months or even years before they are detected.
What can the employer do now once they pick up this payroll blunder?
Firstly let’s look at what the Basic conditions of employment act says when it comes to deduction of monies from employees:
Employers may not deduct money from a worker’s pay unless:
- The worker agrees in writing to the deduction of a debt, or
- The deduction is made in terms of a collective agreement, law (e.g. UIF contributions), court order or arbitration award.
Deductions for damage or loss caused by the worker may only be made if:
- The employer has followed a fair procedure and given the worker a chance to show why the deduction should not be made,
- The total deduction is not more than 25% of the worker’s net pay.
The silver lining though is on Section 34(5) of the BCEA, which literally deals with the recovery of any overpayment which was mistakenly made to an employee by the employer.
An employer may not require or permit an employee to:
- Repay any remuneration except for overpayments previously made by the
employer resulting from an error in calculating the employee’s remuneration.
- Acknowledge receipt of an amount greater than the remuneration actually
Let us look at a CCMA case and its findings, when it came to the issue of overpayments by the employer:
- In Jonker v Wireless Payment Systems CC (2010) 31 ILJ 381 (LC)the employee had initially been paid a car allowance by the employer.
- However, when she was subsequently given a company vehicle, she was no longer entitled to the allowance.
- The employer erroneously continued to pay her the allowance for 11 months.
- When the employer notified the employee of termination of employment for operational reasons, she was informed that it would deduct the amount overpaid in two instalments – one at the end of May and the second at the end of June 2009, the last day of her notice period.
- The employer duly made the first deduction from her May remuneration.
- The employee approached the Labour Court seeking an urgent order for repayment of the amount allegedly unlawfully deducted from her May remuneration and an interdict restraining the employer from making the further deduction at the end of June.
- The employee contended that the employer was prohibited from making the deductions from her remuneration in terms of s 34(1) of the BCEA.
- The court said that as a general rule the BCEA prohibits deductions from employees’ salaries without their prior consent.
- However, deductions without consent were permitted where the employee had been overpaid in error. In such an instance the employer merely had to advise the employee of the error in payment and the amount of the deduction to be made.
In conclusion, clearly the employer has the right to deduct monies owed to them by the employee if overpayments were mistakenly made due to payroll calculation errors or the employer can adjust the employee’s remuneration to what was agreed upon in the contract of employment.
It is advisable that the employer consults and informs the employees of the payroll error and reach an agreement with the employees and their representatives on how the money is going to be recovered or how the adjusting is going to take place.