Fixing an overpayment¶

Overpaying an employee is an easy mistake — a wrong rate, hours entered twice, or an amount left in from a previous pay. It feels natural to just take the extra back out of the next pay. But there is an important rule here, and getting it right protects you.

Under Fair Work rules, an employer generally cannot simply take an overpayment back out of an employee's future pay. Recovering an overpayment by deducting it from pay usually needs the employee's written agreement, with only limited exceptions set by law or an award. The right first step is almost always to talk to the employee.

In one line

You generally can't just take an overpayment back out of a future pay — talk to the employee, agree a repayment arrangement, and check Fair Work's guidance.

Why this matters¶

Taking money out of someone's pay without the right agreement can breach workplace law, even when the money really was overpaid. Handling it the correct way — a conversation and an agreed arrangement — keeps you on the right side of the rules and keeps trust with your employee.

What you will learn¶

What an overpayment is
Why you generally can't just claw the money back
The right first steps, and where to check the rules

Understanding the concept¶

An overpayment is when an employee was paid more than they should have been.

Here is the part people get wrong. Fair Work is clear that an employer can't take money out of an employee's pay to fix up a mistake or an overpayment on their own. Instead, the employer and employee should discuss the overpayment and agree on a repayment arrangement.

If the employee agrees to repay the money, that agreement should be put in writing, setting out how the repayments will be made (for example, by electronic transfer) and how often — and the arrangement has to be reasonable. Fair Work also stresses that the employee's agreement must be genuine: an employee can't be forced or pressured into agreeing to a deduction.

There are some limited exceptions where a deduction may be allowed without that agreement, but these are set by law or by the relevant award — they are not something to assume. If you can't reach agreement with the employee, Fair Work's advice is to get legal advice rather than deducting the money yourself.

So the safe path is simple: don't touch the next pay on your own. Talk to the employee first, agree an arrangement, put it in writing, and check Fair Work's guidance if anything is unclear.

For accountants & bookkeepers

Fair Work draws a firm line here: an overpayment does not, by itself, create a right to deduct. The general position is that recovery from pay needs the employee's genuine written agreement; the exceptions that allow a deduction without it are narrow and come from legislation or an award, not from the fact of the overpayment. Where agreement can't be reached, the guidance is to seek legal advice. Treat any "just deduct it next pay" instruction as a red flag to check the rules first.

Example¶

A hardware store enters Sam's overtime twice by mistake, so Sam is paid more than earned. The owner spots it the following week.

Rather than quietly taking the extra out of Sam's next pay, the owner talks to Sam, explains what happened, and asks how Sam would like to sort it out. They agree that Sam will repay the amount over a couple of pays. The owner writes the arrangement down, both of them keep a copy, and the repayments follow what was agreed. Because Sam genuinely agreed and it was put in writing, the overpayment is handled the right way.

Common mistakes¶

Assuming that because the money was overpaid, you can just take it back — you generally can't without the employee's written agreement.
Deducting the amount from the next pay without talking to the employee first.
Treating a rushed "yes" as genuine agreement — it must not be forced.
Not putting the agreed repayment arrangement in writing.
Assuming an exception applies without checking the law or award.

How this works in myaccountant¶

In the app — myaccountant can process a repayment you have already agreed with the employee, but it does not decide whether a deduction is allowed. That agreement has to be sorted out with the employee first, and put in writing. Once you have an agreed arrangement, you record it in the relevant pay and finalise the pay as normal, which updates what is reported to the ATO. The conversation and the written agreement are your job, not the software's.

Key points¶

An overpayment is when an employee was paid more than they should have been.
You generally can't just take the money back out of a future pay.
Recovering it by a deduction usually needs the employee's genuine written agreement.
The right first step is to talk to the employee and agree a repayment arrangement.
Put any agreed arrangement in writing, and make sure it is reasonable.
If you can't agree, or you're unsure, check Fair Work's guidance or get advice.

Learn next¶

General information only — not tax, super or financial advice.

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