Lessons · Accounting · when somebody has been paid too much
When somebody has been paid too much
An overpayment is an asset: the business is owed money by the worker. It is recovered by agreement rather than by simply taking it back out of the next pay, and how much may be recovered and how fast is usually constrained by law.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
The instinct is to deduct it from the next run and say nothing, and that instinct causes the second, larger problem. The worker has budgeted on the pay they received; a silent correction produces a short pay packet they did not expect, which is how a recoverable administrative error becomes a formal dispute.
How to think about it
Tell the person as soon as it is found, in writing, with the figures. Agree a schedule. Record the amount owed as a receivable and clear it as it is recovered. Never make a deduction the worker has not agreed to.
Worked example
The overpayment is an amount the worker owesA receivable, not a reduction of the expense.
Tell them immediately, with the arithmeticBefore the next run, not during it.
Agree how much comes back and over how longConstrained by law in most places.
Recover against the agreement and clear the receivableNot by a surprise deduction.
Your turn
Name what an overpayment becomes in the books.
An overpayment is recorded as a owed by the worker
Solve one, graded on the server
The trap
Recovering it quietly from the next pay run. It is the fastest way to turn an arithmetic mistake into a dispute, and in many places a deduction the worker has not agreed to is itself unlawful regardless of the overpayment being real.