Employees must always return wage overpayments, but the legalities vary by province, says Laura Williams, founder and principal of Williams HR Law Professional Corporation and Williams HR Consulting in Markham, Ont.
Q: What does an employer do if it overpays an employee?
A: It’s a question that senior federal civil servants have been asking since 2016. That’s when the disastrous implementation of the Phoenix payroll system began, replacing aging software and allowing for the layoff of thousands of payroll clerks. Soon after, government employees began reporting issues with overpayment, underpayment and nonpayment of wages.
Reports indicate that workers who had recently changed positions or who were owed supplementary pay such as overtime experienced the greatest disruption. Four years later, the issue has yet to be fully resolved.
Of course, the average organization will never face an HR challenge as dire as that. In most cases, payroll issues are contained and limited to one or a few employees.
So, what does happen if a staff member is overpaid? Are they allowed to keep the money?
The short answer is that employees must always return wage overpayments, but the details depend on the province in which their employer is based. In Ontario, for example, an employer may deduct a paycheque overpayment. However, the employment standards specify that written authorization is required for all deductions unless authorized by statute or court order.
In Quebec, an employer may deduct an overpayment if it can prove that an overpayment has occurred, while, in British Columbia, an employer may deduct an overpayment with written permission. The same holds true in the territories, Prince Edward Island and Alberta — where employers must also specify the amount of the overpayment in writing.
In Manitoba, the rules are more complex. Employers there may deduct an overpayment, but they must work with the affected employee to agree on a process and timeline to make the correction, such as paying in regular instalments or in one lump sum. If the employer and employee cannot agree on how and when the payroll error will be corrected, the former can deduct the amount equal to what would be allowed if they had a garnishment under the Garnishment Act.
In Saskatchewan, an employer may deduct an overpayment from regular wages if: the overpayment is the result of an honest mistake; the mistake is caught in a timely manner; and the error is dealt with quickly with deductions occurring in the following pay period.
The federal government also reserves the right to deduct overpayments.
But even if an overpayment is detected, employers should be reasonable and use discretion to ensure that employees are not unduly financially impacted. Having proactive workplace policies already in place to address wage overpayment is a best practice.
Simply put, employers need to consider both the bottom line and their employer brand. That means working to avoid negative social media fallout or the kind of unwelcome press that tends to be generated when organizations take a heavy-handed, corrective approach to a mistake that was theirs in the first place.
Laura Williams is founder and principal of Williams HR Law PC and Williams HR Consulting