If My Employer Has Overpaid Me, What Are My Rights, and Do I Have to Give the Money Back?

Two women fighting over a dollar bill. — Under federal law, you do have to give back an improperly received bonus. Glowimages/Getty Images

My employer has overpaid me, what are my rights? It just feels wrong. Back in 2016, 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.

Contents

Employees Have Little Power
Overpayment Doesn't Equal Extra Money
What About State Law?

Employees Have Little Power

Deborah England has seen it firsthand. A civil rights attorney in San Francisco, England has more than 30 years of experience in labor and employment law. She said 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, not to mention any legal fees incurred throughout the process.

"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," said England when we spoke to her in 2016. 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 take legal action by suing for breach of contract.

Overpayment Doesn't Equal Extra Money

Contract disputes are one thing, but what if payroll simply screws up and cuts a lump sum 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 the future wages of an employee — 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, employers 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 said.

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," said England.

What About State Law?

Don't expect to be saved by state laws either. According to Washington state law, employers don't have to notify the employee that it is garnishing their wages if the overpayment was inadvertent and it was caught within 90 days of the initial pay period. 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 said.

Now That’s Cool

After massive negative publicity about the case, a Pentagon official said in 2017 that most of the California National Guard soldiers who got improper bonuses (15,000 of the 17,500) would not have to pay them back. The ones who still had to pay were those who didn't fulfill the military service requirements. A fiscal 2017 National Defense Authorization Act forbids the Pentagon from clawing back improper enlistment bonuses unless the soldier “knew or reasonably should have known” they were ineligible for the benefit.

Overpaid Work FAQ

Can an employer take money back if they overpay you?

Yes, if you are overpaid, your employer has the legal right to take back the full amount.

What happens if your employer accidentally overpays you?

The Federal Labor Standards Act (FLSA) gives legal rights to every company in the state to take back an overpayment from an employee, no matter the consequences.

Can an ex-employer claim overpaid wages?

Yes, they can. Even if the employee has left the company and moved on, the former employer has all the rights to reclaim the overpaid money. However, it can be difficult for them to track down the employee.

What are my rights if my company has overpaid me?

Unfortunately, not much can be done on the employee's part if an employer has overpaid them. If it will cause financial strain, you may be able to negotiate a payment plan of sorts in which they take back the money in small increments over time.

How long does an employer have to reclaim overpayment?

Overpayments can be collected over six years. However, an employer can only collect overpayments made in the eight weeks prior to notification.