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How to recover overpaid money from a past employee?

Creditreform (UK) Limited

A debt owed by an employee to their employer is usually due to an overpayment in salaries, bonuses or overtime. Whether this is due to an error by the employer or the employee it is still a debt that is owed and the employer is entitled to reclaim this money.

There are many reasons for overpayments to employees which is usually paid in their monthly/ weekly salary. Repeated overpayments can cause financial issues to the company. In such cases, it is vital for the employer that once identified it addresses the problem as quickly and swiftly as possible to avoid future accounting issues. Businesses need to have systems and clear processes in place to claim back any overpayments made.

The best way to tackle overpayment of wages is to agree a deduction in future payments. However, this is only possible if the employee is still part of the company, the employer can explain the whole situation to the employee, along with the repayment process, and make sure they understand its consequences. After this, a repayment method can be decided, either a lump sum or instalments, and then the deductions can be taken from employees’ wages.

The employer has the right to recover overpaid money even if the employee has left the company. However, this then becomes an external debt and can lead to problems if the overpaid money from an ex-employee does not voluntarily repay to the company. Initially the company should contact the ex-employee with a detailed statement of the overpayment and request this amount to be repaid immediately. However, if the ex-employee no longer resides at the address on the company’s system and there are no contact details for the company will need to trace them. There are a number of specialist companies that are able to trace missing people or absconded debtors. Once the ex-employee has been traced and located, you should send them an informal letter describing the error and the intent to recollect.

If the ex-employee does not respond or agree to repay the overpayment then the company will need to outsource to an expert debt collection agency or solicitor. As solicitors can be expensive it would be advisable to use a debt collection agency who operates on a no win no fee basis. They will then take over the case on the company’s behalf and will usually resolve and recover monies owed.

Where the specialist debt collection agency fails then the only possible remaining action is through the legal system. Again the specialist debt collection agency will be able to guide the company through the processes and costs to be incurred and recovered.

Here at Creditreform we have a specialist collection service for ex-employees on a No win No Fee basis. For further details please contact us.

Sean Hemmings
Creditreform (UK) Limited
Tel: 078943 15359 
Email: sean.hemmings@creditreform.co.uk