If Your Boss Overpays You, Do You Have to Give the Money Back?


Under federal law, you do have to give back an improperly received bonus. Glowimages/Getty Images
Under federal law, you do have to give back an improperly received bonus. Glowimages/Getty Images

It just feels wrong. Last week, the Los Angeles Times called out the Pentagon's aggressive effort to claw back millions of dollars in bonuses paid to California National Guard members who re-enlisted to fight in the wars in Iraq and Afghanistan. (Under pressure to meet quotas, the California Guard improperly handed out re-enlistment bonuses to thousands of soldiers who did not qualify for them, although the soldiers didn't know they were ineligible.) Faced with angry blowback from Congress and veterans groups, Defense Secretary Ash Carter called for an immediate suspension of the debt collection efforts until a fair and streamlined system could be devised.

Americans were shocked by the idea of the government taking back bonuses (with interest!) from veterans who had served their country faithfully, demanding $20,000 to $40,000 from each soldier. But the truth is that most employers — public or private — have the legal right to recoup bonuses or other wages if they can prove that the worker was overpaid.

Deborah England has seen it firsthand. A civil rights attorney in San Francisco, England has 30 years of experience in labor and employment law. She says that the National Guard case involves a completely different set of legal issues, but that regular workers also can end up owing money to their bosses.  

"Most of the cases I've seen involve a hiring bonus where there was a string attached, such as the person had to stay employed for X amount of time with the company," says England. If the employer feels like the worker didn't live up to her end of the bargain, they can ask for the bonus back. If the worker refuses, the boss can sue for breach of contract.

"Under the federal law, an employer can deduct the full amount of overpayments, even if — and this is key — it brings the employee’s wages under minimum wage for the pay period."
Deborah England, Civil Rights Attorney

Contract disputes are one thing, but what if payroll simply screws up and cuts a check for $2,000 more than the worker deserves? Does the lucky employee have to give back that money, too?

Yup.

Both state and federal labor and employment laws give employers the right to garnish an employee's wages — subtract chunks from a worker's paycheck — in cases of overpayment. The federal law, known as the Fair Labor Standards Act, is notoriously weak on worker protections when it comes to garnishing wages.

"Under the federal law, an employer can deduct the full amount of overpayments, even if — and this is key — it brings the employee's wages under minimum wage for the pay period," England says.

In a published opinion, the Wage and Hour Division of the Department of Labor confirms, "It has been our longstanding position that where an employer makes a loan or an advance of wages to an employee" — overpayment counts as an "advance of wages" — "the principal may be deducted from the employee's earnings even if such deduction cuts into the minimum wage or overtime pay due the employee under the FLSA."

"Basically the federal law gives no protection to the employee," says England.

Many state laws are just as bad. In the state of Washington, an employer doesn't even have to notify workers that it is garnishing their wages if the overpayment was inadvertent and it was caught within 90 days. In Indiana, employers can recoup overpaid wages without authorization, but at least have to give two weeks' notice before pulling money from each paycheck.

California offers the strongest worker protections against bosses clawing back money that they think was overpaid. First, an employer can only recoup money if the worker signs a written agreement outlining the exact terms of repayment.

If the worker refuses, then the boss can take it to the courts and initiate garnishment proceedings. Even if the employer proves its case, that the worker was indeed overpaid, "under no circumstances can an employer reduce an employee's wages below minimum wage here in California," England says.

So if you think that the National Guard horror story couldn't happen to you, you might want to check up on your state's labor laws.