Overpayments of wages to an employee can present unexpected legal issues. An overpayment of wages may occur because of an administrative or clerical error, incorrect data in payroll, changing over of payroll systems or because of misinterpretation of an applicable modern award or enterprise agreement.
In the leading case on overpayments made under contract is David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at [43] the High Court held:
‘If the payer has made the payment because of a mistake, his or her intention to transfer the money is vitiated and the recipient has been enriched, There is therefore no place for a further requirement that the causative mistake be fundamental’.
To be entitled to recovery of the overpayment sum, the employer must first demonstrate that the overpayments were made as a genuine mistake or error.
Recovery will generally not be available if an employer intended to make the payment despite the employee not strictly having an entitlement.
As an employer, in approaching an overpayment, the first step is to justify how the payment was a genuine mistake in the circumstances. Once that information is obtained, the employer will be able to request recovery of the monies.
The Fair Work Act 2009 (FW Act) contains a strict set of requirements that regulate the ability of an employer to withhold monies from an employee’s wages.
A deduction will only be permitted in accordance with section 324 of the FW Act where the employer is authorised:
1. In writing by the employee and is principally for the employee’s benefit.
2. By the employee in accordance with an enterprise agreement.
3. By or under a modern award or a Fair Work Commission order.
4. By or under a law of the Commonwealth, a State or Territory, or an order of a court.
Section 324 of the FW Act means that an employer cannot deduct money from an employee wage for an overpayment without the employee agreement. If they do, it is a breach of the Act and serious penalties can apply.
If an employee withholds agreement to repay the money, an employer may seek recovery through the Courts.
If you have overpaid an employee and are seeking to recoup that overpayment, there are processes available to recoup that overpayment
This article was published on 20/09/22 and the information is valid only to the date of publishing. This article should be considered merely general and non-specific on the subject matter and is not and should not be considered or relied on as legal, advice. Meehans Solicitors is not responsible in the event this information is relied upon by the reader in the absence of specific legal advice.
