Underpaid or overpaid: 'You can't outsource responsibility or liability'

Some employees at Montreal-based engineering firm AtkinsRéalis, formerly SNC-Lavalin, recently had their pay delayed while the company moved to a new resource planning system. A company spokesperson, Laurence Myre Leroux, confirmed delays in both the Aug. 19 and Sept. 2 pay cycles.

She said the problems followed the company's July extension of its international finance and accounting platform to Canada, according to the Canadian Press, and that the company had prepared its employees for the changes before the new system was adopted.

Leroux said the most recent cycle had fewer issues, though she did not say how many employees were affected, and that the company offered support and off-cycle payments where needed. As of the end of 2025, AtkinsRéalis employed more than 40,000 people worldwide.

The case serves as a reminder of the importance of paying people correctly.

"A lot of times when these issues arise, it's not intentional, it’s usually payroll errors," says Sara Kauder, senior employment lawyer at Minken Employment Lawyers. "It's usually administrative and system issues that are going to result in that sort of situation."

She lists the usual culprits: incorrect wage rates entered into the system, bonuses that are improperly implemented, unpaid overtime, vacation pay miscalculations, errors in recording hours, duplicate payments, and delays in processing leaves or terminations that leave someone on payroll after they've gone.

“Those types of administrative or system issues are usually what's going to cause these things rather than some sort of intentional positioning on the part of the employer.”

Why payroll errors go unnoticed

Salary increases can also fall through the cracks, which happened to Kauder herself years ago.

"It just inadvertently wasn't implemented. And I didn't realize it, my employer at the time didn't realize it, and it was actually at tax time where my accountant flagged it."

Pay statements are also part of the problem. In the past, Kauder says paper pay stubs were rarely looked at, and now with electronic versions, “people are probably checking even less frequently because it just goes into your email, or sometimes you get a notification that you've been paid."

“Unless you actually go into the system and check what has happened, I think a lot of people are not necessarily paying attention.”

The result, she says, is that by the time an error is caught, "it's something that's been perpetuated over several pay periods as opposed to just one."

Employee relations risks

Jeffrey Adams, a labour, employment, and human rights lawyer at SpringLaw, agrees that part of the problem is pay stubs are difficult to read, so underpayments “often skate under the radar.”

He also says that payroll problems are rarely the result of bad intentions.

“I haven't dealt with any circumstance where an employer was conspiring to underpay by withholding wages — that's pretty draconian.”

Adams says the AtkinsRéalis situation shows that payroll problems can arise with a change in the implementation of a new system. But that doesn't soften the impact.

"From an employee's perspective, the reason doesn't really matter," he says. "They just look at their paycheque. Employees rely on that to cover rent, mortgages, groceries, food, daycare."

For that reason, he says, a payroll error can quickly turn into more of an employee relations problem than a legal one, with reputational risk attached.

The biggest mistake, whether it's an overpayment or underpayment or other kind of error, is waiting too long to communicate, says Adams.

First steps when error is discovered

Once an error comes to light, Kauder says the employer should investigate immediately to determine its scope, document the findings and speak openly with the affected employees.

"This is not something where you want to keep it a secret. Transparency is important."

If an employee has been underpaid, they should be paid what they're owed as soon as possible, she says. Payroll records and statutory remittances should also be corrected quickly.

“You don’t want to be in a situation where, as an employer, you run afoul of either the Employment Standards Act or the Income Tax Act,” she says. "You have to make sure that your records are also then reflective of what has been paid."

Adams is blunt about whether an employer that discovers an underpayment on its own is obligated to tell the employee.

"It goes both from a moral point of view and a legal point of view, because if you don't, it's fraud."

Careful approach to advances

Some employers may want to offer a temporary loan to an employee who is short on payments such as rent because of a payroll mistake. Kauder says that could be worth considering on a case-by-case basis, particularly if the employee is in financial distress.

But she cautions against moving too fast without a proper investigation.

"If it's a situation where they're not really sure whether there was an underpayment, then you're in a situation where maybe you're advancing money to an employee that could then be viewed as an overpayment," she says.

"You may just be creating another issue in the future and it snowballs.”

How to handle overpayments

With overpayments, it’s often an issue that crops up during termination and statutory entitlements, says Adams. And reducing ESA entitlements or pay in lieu or severance is risky, he says.

“Realistically, you're not getting the payment back from many employees willingly. So probably some kind of legal action after that would be the only way to recover… it’s an unfortunate financial reality with a lot of these cases.”

He says the first step is to find out why it happened, whether through human error by a payroll professional or a system failure, and then to tell the employee. The size and length of the error shapes the conversation, Adams says.

"If it is over a couple of pay cycles, my first question is ‘Why did it take you two pay cycles to figure this out?’"

If there's an overpayment, it's very important for the employer to explain the error and to provide supporting calculations to explain why that error took place, says Kauder, “and then you want to try to reach a reasonable repayment arrangement with the employee.”

Clawing back money paid in error is where employers need to tread carefully, with Kauder calling it “challenging” and “risky.” She notes that the law of restitution governs this area, and recovery is generally easier when the employee was never legally entitled to the money.

“If it's a situation where there's a dispute as to whether or not that money was actually owed or earned, that's where it becomes a little bit more challenging from a practical standpoint for the employer to potentially recover,” says Kauder.

The ESA adds another layer. She says recovering overpaid wages through payroll deductions can be risky, because "unless there's a court order or a specific agreement… if you're not paying out an employee's actual wages, then the employer could potentially be in breach."

'Extreme caution' with clawbacks

Adams also advises approaching clawbacks “with extreme caution.” He says there is Ontario case law permitting a clawback from wages, but only on narrow grounds, such as the employee not having expected the overpayment and having acted honestly.

"The only real safe way an employer can withhold wages is on consent," he says, which should be in writing. "It goes back to communication: Go to the employee, tell them there is an honest error, get their perspective, find out whether they have spent the money already. And if they have, right or wrong, that may change the approach you take.”

The employer can look at legal routes to recovery but obtaining consent "is always the quickest, the easiest, most efficient way to do it,” says Adams.

Kauder also recommends documenting the overpayment in writing and agreeing on a repayment plan, “particularly if it’s a large amount, you may not necessarily want to grab all of that in the next payroll run,” she says.

“Maybe that’s something that you are gradually going to have the employee repay.”

Vacation pay and departing employees

Vacation pay is a common flashpoint. Kauder says it's regulated by the ESA in the same way as other wages, while errors involving CPP and EI fall under the employer's obligations under the Income Tax Act.

Adams says the overpayment scenario he encounters most often involves vacation pay, particularly on termination. He warns against letting employees take more vacation than they've accrued. If someone takes two extra weeks and then quits, the employer may be out a significant amount of money with no easy way to recover it.

“I always advise employers not to let people go in the hole [or] on rare occasion only, if the trust is high.”

Adams says that some recent Ontario Labour Relations Board decisions have conflicting interpretations regarding whether employers can deduct overpaid vacation pay, and because OLRB decisions are not binding on courts, the law on this issue remains unsettled.

Small claims court, which he notes now handles claims up to $35,000, would typically be the route. But below a certain amount, "it costs more to recover than you get back."

Kauder says an overpayment sometimes resurfaces during litigation, where an employer seeks to offset what it owes a departing employee. She described a large international employer whose offshore payroll provider overpaid vacation pay to many employees, something she called "a very, very costly error."

Short of litigation, pursuing a former employee comes down to a cost-benefit analysis, says Kauder.

“Is it going to be worth the time to go through the litigation process to try to collect that amount, or do you just let it go and you've just learned a very valuable but very expensive lesson?”

Third-party providers don't shift liability

Whether the mistake comes from an in-house team, a software system or an outside payroll provider, the obligation stays with the employer.

"As an employer, you can outsource payroll administration, but you can't outsource responsibility or liability when it comes to payment of wages," says Kauder.

“It's the employer's obligation legally to make sure that everything is paid properly in accordance with the ESA and the Income Tax Act.”

The employer may have a separate claim against the provider for breach of contract, negligence or indemnification, she says, but that doesn't relieve it of its obligations to employees.

Adams agrees that the employer is ultimately liable — through vicarious liability or the payroll provider acting as an agent — but says courts generally understand that human error happens.

“[Whether] there's a bona fide attempt to correct and there's no enduring damage to the employees, that's the big question: ‘What was the damage? Was the damage repaired? How quickly was the damage repaired? And is there going to be ongoing damage?’” he says.

Nuances and AI at work

Larger organizations with sophisticated systems may seem less prone to error, but Kauder says the consequences are also bigger when something does go wrong.

 "If it happens, the impact is going to be much more significant because you have that many more employees. The level of sophistication usually is, in theory, going to give you that comfort that things are going to run smoothly. But if it doesn't, it’s going to hurt financially.”

She also expects that a growing reliance on AI tools in the workplace will bring new risk of error.

"There's so many nuances in employment law and so many potential areas where things could go wrong that employers have to be so cautious."

Clear documentation of compensation changes, and making sure that payroll is aware, is essential, she says: “It’s very important for that information to be documented and to flow properly.”