Employer says you were overpaid? What the deduction rules say and how to reply

If your employer says you were overpaid, do not sign anything or agree to a deduction straight away. Under the Fair Work rules, an employer can only take money out of your pay in limited circumstances. Ask for the claim in writing with the figures, check it against your pay slips, and reply in writing.

Claim Done drafts a wage overpayment dispute letter from your answers for a flat A$49. It asks your employer to prove the claim, says you do not authorise any deduction from your wages, and offers to talk about repayment only if an overpayment is shown.

When an employer can take an overpayment out of your pay

The Fair Work Ombudsman’s overpayments page says overpayments can happen when an employer mistakenly believes you are entitled to the pay, or because of a payroll error. It also says employers can only take money out of your pay to fix a mistake or overpayment in limited circumstances.

The Ombudsman’s deducting pay page, which lists sections 151, 324 and 326 of the Fair Work Act 2009 as its source, sets out the general rule for any deduction. An employer can only deduct money if:

• you agree in writing and it is mainly for your benefit
• it is allowed by a law, a court order or a Fair Work Commission order
• it is allowed under your award, or
• it is allowed under your registered agreement and you agree to it.

Some points from the same page matter a lot here:

• Your written agreement to a deduction must be genuine. You cannot be forced to agree.
• If you already signed a written authorisation, you can withdraw it in writing at any time.
• Some awards let an employer deduct without your agreement in particular situations. Check your award, registered agreement and employment contract.

The Ombudsman’s own worked example describes an employee whose award does not allow a deduction for an overpayment. He agrees to repay, and the arrangement is put in writing and signed by both sides.

What the Fair Work Ombudsman says should happen

The Ombudsman says that when an overpayment occurs, the employer and employee should discuss and agree on a repayment arrangement. If you agree to repay, a written agreement should set out:

• the reason for the overpayment
• the amount overpaid
• how repayments will be made, and how often (this has to be reasonable).

If an arrangement cannot be agreed, the Ombudsman says the employer should get legal advice. So the Ombudsman’s approach is a conversation and a written agreement.

Check the claim before you accept it

You can ask to see the numbers. Under the Ombudsman’s record-keeping rules, if you ask to see your records, your employer must make them available, even after you have left. Employers have to keep time and wages records for 7 years.

Your pay slips must be given within 1 working day of pay day and must show the pay period, your gross and net pay, and the amount and details of any deduction. Line up the pay runs your employer names against your pay slips. Look at the rate, the hours and any leave paid.

Ask which financial year the overpayment happened in. This changes the figure. The ATO’s guidance to employers says:

• If it is found in the same financial year it was paid, you only need to repay the net amount, which is the amount you actually received.
• If it was paid in a previous financial year, you repay the gross amount, including the tax that was withheld, and you will likely need to amend your tax return.

The same ATO page starts by telling employers that if they overpay someone, they must decide whether that person is required to repay.

On the tax side, the ATO’s page on amending a return for repaid income says that where your employer mistakenly overpays salary, you do not have to repay it before amending your tax return. Your employer should give you an amended income statement or payment summary, or a letter correcting it.

Are you in the Fair Work system?

The deduction rules above are Fair Work rules. Many employees are covered, but some are not, and who is left out depends on the State. The Ombudsman’s page on the Fair Work system says people outside it should contact the relevant state body or their HR department.

If you are outside the Fair Work system, check your State’s rules with that body before you reply. The letter below refers to the Fair Work rules.

What your reply should say

A good reply is calm and short, and it protects your position. It should:

1. Refer to the “alleged overpayment”, so you do not admit anything you have not checked.
2. Ask the employer to set out in writing how it arose, the exact gross and net amounts, the calculation, and the pay periods affected.
3. State plainly that you do not authorise any deduction from your wages to recover it.
4. Say that if an overpayment is properly shown, you are willing to discuss a reasonable arrangement.
5. Ask for a written response within a set time.

How the letter is laid out

The Claim Done letter follows this structure:

• Background: your role, your employer, the amount they say was overpaid, and how they are trying to recover it.
• The employer’s claim: what the employer says caused it and over what period, set out as their claim, not yours.
• Your position: a request that they substantiate the claim, a clear statement that you do not authorise any deduction, and a statement that you are not admitting an overpayment (unless you told us you accept it).
• Proposal: without admitting anything, an offer to discuss a reasonable, agreed arrangement if an overpayment is established, using your own idea of what you could manage, such as instalments.
• Close: a request for a written reply within 14 days, and your dated signature line.

You download the PDF straight away and send it yourself.

How to send it and what to keep

• Send it by email to the person handling the claim, so you have a dated copy.
• Keep the employer’s first message, your letter, every pay slip for the periods named, and any reply.
• Keep checking your pay slips. Any deduction must be shown with its amount and details.

What happens next

If your employer sends the figures and you agree there was an overpayment, the next step is a written repayment agreement that sets out the reason, the amount, and how and how often you will repay. Only agree to what you can actually manage.

If they ignore your letter, or take money from your pay anyway, call the Fair Work Infoline on 13 13 94. The Ombudsman also suggests you can speak with a union, an industry association or a workplace relations professional.

Mistakes to avoid

• Signing a deduction form or repayment plan on the spot, before you have seen the figures.
• Agreeing to repay the gross amount when it was paid and found in the same financial year.
• Agreeing to a repayment timetable you cannot keep. The Ombudsman says how often you repay has to be reasonable.
• Only talking about it in person. Put your position in writing.
• Ignoring a written authorisation you signed earlier. If you no longer agree, withdraw it in writing.

When you are ready to answer your employer, start your overpayment dispute letter for A$49 and download it straight away.