Debt Recovery – Do you need to recover an overpayment made to a former employee?

An overpayment of wages to a former employee can happen for various reasons, including a glitch in the payroll process, miscalculation of a bonus or an overpayment of holiday pay. This does not mean that they are legally entitled to keep the money even if the payment was made as a result of your error.

What should you do?

The first step would be to contact the former employee to make them aware of the situation and provide them with evidence or a calculation of the overpayment depending on the circumstances. If you do this by telephone we would recommend that you follow it up with a letter so you have a paper trail if needed at a later date. Your letter should provide clear information on the following.

•  How the overpayment occurred
•  The amount of the overpayment
•  Contact details of somebody in your organisation where they can direct any questions
•  A timeframe of when you would like the money to be repaid

It is important that you keep in mind initially that the overpayment would not have been within your former employees control so you will need to be fair and offer a reasonable time for the money to be repaid if they are unable to make immediate payment. Usually these things can be resolved amicably and you will receive your money back although it may be by agreed instalments if they are unable to repay you in full immediately.

What happens if the money is still not repaid?

Such is life that on occasion some people will try to take advantage of the overpayment and attempt to avoid paying it back. The money is not theirs to keep and you are entitled to be repaid. If despite following the advice above you have been unable to reach agreement then the next step would be to escalate it to a debt recovery solicitor or debt collection agency who would send a Letter Before Action to your former employee to request payment. A Letter Before Action is a formal demand for payment and if the debt remains unpaid you would be able to issue proceedings with a view to obtaining a County Court Judgment.

The process should not be overly complicated or involve large legal costs. In our experience, most cases are resolved with a Letter Before Action. In certain circumstances we may suggest that we carry out a trace if you are unsure of the current address of the former employee.

If you need any advice on collecting an overpayment made to a former employee contact Alexander Neale, dispute resolution partner at amn@debenhamsottaway.co.uk or telephone 01727 735650.