Advise an Employee of Pay Deductions to Recoup a Wage Overpayment Letter

Author: Alice Gilman

When to Use

The below letter may be used to advise an employee that the amount of a wage overpayment will be deducted from the employee's next wage payment, if the employee has not responded or agreed to meet to dispute the overpayment. Send this letter only after the employer has already sent the employee the Request for Employee Acknowledgment of a Wage Overpayment Letter and the Opportunity to Dispute a Wage Overpayment Letter.

Customizable Letter

[insert organization's logo, name and address]

[insert date]

[insert recipient's name]

[insert recipient's physical address (and/or email address if applicable)]

Subject: Wage Overpayment

Dear [insert recipient's name]:

You were notified by letter dated [insert date], a copy of which is enclosed, that you were overpaid a net amount of $[insert dollar amount] for the pay period ending [insert date]. We requested in a second letter dated [insert date], which is also enclosed, to either contact us to provide information if you did not agree that you were overpaid or did not arrange for repayment.

[insert one of the following paragraphs, as applicable:]

[Option 1: On [insert date], we met and discussed the overpayment. Based on the information you provided, we still believe you were overpaid. Therefore, we plan to deduct $[insert dollar amount] from your next available wage payment.]

OR

[Option 2: You have failed to respond to our letter dated [insert date], or to provide any reason to suggest that you do not owe the above amount. Therefore, we plan to deduct $[insert dollar amount] from your next available wage payment.]

If it is not possible to recover the entire overpayment from the next wage payment, we will deduct $[insert dollar amount] from each subsequent wage payment until the repayment is complete.

If you have any questions, please do not hesitate to call me at [insert phone number].

[insert closing (e.g., Sincerely, Very truly yours,)]

[insert handwritten signature (for a mailed letter) and typed signature]

[insert sender's title]

[insert enclosure line as applicable (e.g., Enclosure or Enclosures)]

Tips

Although notifying an employee of a wage overpayment is a good practice, an employer does not have to obtain permission from an employee who is nonexempt under the Fair Labor Standards Act (FLSA) to make pay deductions to recoup a wage overpayment. That is so even if the deductions bring the employee's net pay to below the minimum wage. The deductions may also be made from overtime pay.

However, the FLSA prohibits deductions from an exempt employee's guaranteed weekly salary, even if the employee gives permission for the deduction. The employer must review the employee's pay records to determine if there is other pay (e.g., a bonus) or the value of benefits (e.g., a vacation allotment) from which an offsetting deduction may be made. If there is no other pay from which deductions may be made, the employee must write a personal check to the employer to pay back the overpayment.

Remember to enclose the Request for Employee Acknowledgment of a Wage Overpayment Letter and the Opportunity to Dispute a Wage Overpayment Letter for the employee's convenience.

The sender's address is usually included in letterhead. If you are not using letterhead, include the sender's address at the top of the letter one line above the date. Do not write the sender's name or title, as it is included in the letter's closing. Include only the street address, city and ZIP code.

Warnings

An employer should check the applicable state wage payment laws that may limit pay deductions.

The above letter is a model letter but, if necessary, it should be modified to comply with any applicable state and local laws.

Additional Resources

How to Recoup a Wage Overpayment

How to Obtain an Employee's Consent to Claim a Refund of Overwithheld FICA Taxes

Request an Employee's Consent to Claim a Refund of Overwithheld FICA Taxes - Form

Recoup a Wage Overpayment - Worked Example