How to Correct Payroll Under or Overpayments
Payroll underpayment or overpayment happen at times and employees may be overpaid or underpaid. This may be result of improper hours and overtime calculations, or over or underpaid vacation/sick pay. It’s important that you make corrections properly under the current labor law.
Underpayment
When underpayments are made, whether it be due to missed hours or overtime, or improper deductions for benefits or any number of payroll mistakes, its critical that you make corrections as soon as you know of the error, whether you discover it, or the employee informs you of the error. Late payment penalties can apply if you fail to make the changes as soon as you can and get the employee paid for the difference. Its best to put the underpayment in writing, explain why it happened and notify the employee. Its highly suggested that you have the employee sign off on the correction that they agree it completely corrects the error.
Overpayment
If overpayments are made, correcting the issue and recovering the overpaid wages is a little more tricky. In California, the Division of Labor Standards Enforcement (DLSE) views deductions from wages to recover overpayments to an employee as unlawful deductions under the law. Wage deductions in California are regulated by numerous court decisions and labor code, which stipulates that it is unlawful for an employer to collect or receive any part of wages already paid to an employee. However, the law does allow for an employee to voluntarily agree to repayment of any overpaid wages as long as the employee’s wages are not reduced below minimum wage.
When this happens, it is highly suggested that you gather the information and make absolutely sure you have clear evidence of the overpayment. Next, present it to the employee as a “notice of intent” and make sure they agree, and that you allow them a few days to check their own records. Once you have an agreement, make sure it is documented in the form of a Pay Check Deduction agreement, which Infinium can help you with. Attach all back-up documentation and have the employee sign off on the repayment plan. If it’s a significant amount, although you can legally take it as a lump sum as long as it is not below their net pay), be sure to offer a payment plan that does not impact the employee to heavily. Only then should you deduct from wages.
Tread Carefully with Wage Issues
The general rule, especially in California and other states that have wage deduction restrictions, is to seek counsel with an HR or Payroll professional, or Infinium of course, before you take any action with regards to wages and paycheck deductions.
As always, what makes sense to us every day business owners, does not make sense with California labor law, so always seek advice form the professionals at Infinium HR.