Every company needs to have an accurate payroll system. Yet, payroll miscalculations can happen even to the most well-resourced companies. For instance, the Civil Service recently reported payroll miscalculations affecting around 3,000 past and present employees.
Payroll miscalculations can occur both ways: underpayment and overpayment. Under the Employment Act, an employer is legally obligated to pay the employees their salary in full, on time. However, what is less straightforward is when you, as the employer, overpay your employees.
You Can Reclaim Overpayment Through Salary Deduction For Existing Employees
The Employment Act protects not just employees but also employers. Employers are legally allowed to deduct any salary overpayment from employees’ salaries.
If the salary overpayment happened while the employee is still under your employ, it is straightforward to recover the overpayment through salary deduction.
Unlike other salary deductions that are usually capped at 25% of an employee’s salaries, employers can deduct salary overpayments in full. Deductions for salary overpayment are also not subject to the 50% max deduction per salary period. This means that is possible to deduct a full month’s salary for salary overpayment.
When The Overpayment Is More Than A Month’s Salary
However, while the law is on your side for salary overpayment, it may be prudent to exercise some leeway in making salary deductions. Typically, salary deductions are capped at 25% to a maximum of 50% to allow employees sufficient leeway in meeting their monthly recurring expenses. If the employee has spent the overpayment and the overpayment has been incremental over a long period of time, recovering the full amount through a one-time salary deduction can be detrimental for their finances.
In such cases, it may be better for the employer and employee to work out a repayment plan and gradually recover the overpayment across multiple salary periods. Alternatively, the overpayment can be recovered from additional wages such as bonuses or overtime pay which may be less impactful on the employee’s monthly finances.
You Have The Right To Legal Recourse To Reclaim Overpayment From Past Employees
The employer’s right to recover salary overpayment does not expire when the employee leaves the company. However, it is much more difficult to do so as you cannot deduct from their salaries. Assuming that you can contact your former employee, you can request that they repay you the overpayment and inform that they are legally bound to comply.
However, if they refuse to repay you or they are uncontactable, you may have to seek legal action, especially if the overpayment is substantial, such as in the case of Tan Tock Seng Hospital which continued paying an ex-employee for over a year after her employment ceased and the overpayment amounted to over $32,000.
If the overpayment is within the company’s means, it may be worth considering writing it off, instead of pursuing legal action. This is especially so if the overpayment happened years ago and certain employees may have actually retired. In the case of Civil Service’s payroll miscalculations, the errors in payment date back to the 1990s about 30 years ago. While the Public Service Division rectified the errors by making good payments for the underpaid employees, they chose not to pursue the cases of overpayment.
Accurate Payroll Is Essential
Regardless, salaries can affect the lives of employees, past and present. In cases of overpayment, employers should exercise sensitivity in making salary deductions and make clear explanations to their employees before deducting their salaries. Likewise, for employees that have left the company, the employer needs to weigh whether it is worth the while to pursue the salary overpayment recovery.
As an employer, it is only good practice (and mandatory under the Employment Act) to maintain accurate itemised payslip records. In any incident of unfortunate payroll miscalculations, these records will be essential.
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