Payroll Recovery of Overpayment

Ali_Bali_2

My son (19) has been told by his employer that they made a mistake with his wages and have overpayed him for the past 9 months total £2060. i know that their is a defence to repaying this called the estoppel defence, however i'm not keen to pursue this as, well, you know how non-union employers treat people who cross them. What i am interested in is how the repayment is treated for tax and NI. in effect he was given £2060 which had £680 taken off for tax and NI (33%) thus he has £1380 in his pocket. They want to recover the £2060 in 12 payments @ £172 per month. This is £2060 but he only got £1380! If they take the £172 from his pre tax income then tax him on the remainder does this mean he is not out of pocket. I have made 2 calls to the Inland Revenue but found i knew more than them.
Can one of you clever moneysavers help me understand this and how do i ensure the correct amount is taken?

toozie_2

I can't hepl you with the tax/NI issue, but surely if he put it in writing that he can only afford to make x£'s repayments each month, and not the £172 offered, they have to accept, some people may not be able to afford such a high repayment, when after all, its not his fault in the first place.

Savvy_Sue

I think it's even more complicated than it looks at first sight, because the NI is made up of both Employer's and Employee's contributions ... so the employer should be in a position to reduce what they are paying to IR for NI and therefore shouldn't need to recover it from your son. There is only a reconciliation between what was due and what was actually paid at the end of the tax year.

I used to have access to the IR payroll calculations CD but unfortunately don't any more. Do you know any small business person running their own payroll who might help you run a few figures through? If not, you could ask on the Charity and Small Biz board if anyone can help.

Starting by making an offer of reduced clawback would be a good first step while you sort the rest out.

Poppy9

The overpayment should be deducted from his gross wages before NI & Tax is calculated. This means that these taxes will only be calculated on the lower amount. In effect he pays less tax. If you are on PAYE it is ok.

I know of one person who was dismissed by a LA for accepting overpayments for 4 years. Mix up in paperwork between HR & Payroll meant he had been receiving full time pay while working part time and hadn't mentioned it. When it was discovered he tried to get out of repaying. The auditors and HR took a strong line with him and he was dismissed for gross misconduct. Union appealed but it was held to be a fair dismissal. This happened about 10 years ago so I can't find anything relating to it. Mind you it was for about £50k.

Savvy_Sue

Poppy, you obviously know more about this than I do, but is it really the gross amount they should be recovering, or the net amount? They can adjust their PAYE and NI at end of year, can't they? It's late, it may just be my brain not getting round it ...

Poppy9

Savvy know the feeling LOL

OK say he got paid correctly £1000 plus they overpaid him £200 making total taxable pay £1200. Inland revenue get NI say 10% and tax 20% (not the right %ages but it keeps it simple) so that is £120 NI £240 tax deducted. Net take home pay £840. If he had been paid correct it would be £1000 gross less £100 ni £200 tax = net £700. i.e overpayment = £140

Now to recover overpayment. £1000 less £200 = £800. Ni £80 Tax £160 take home pay £560. Net overpayment recovered £140 (£700 correct take home less £560 reduced take home).

If it was me and it was reasonable for him not to notice the overpayment I would ask to repay over 18 months. This would take it down to just over £100 per month before tax. Much more manageable. It is upto the employer to sort it out with the tax office which they will have to do anyway as a new tax year and rates come into effect 1st April 2005.

Savvy_Sue

Poppy, thank you for taking the time to put that in words of mostly one syllable.

Another thought Ali Bali, I know your son doesn't want to rock the boat, but if it was not just him who has had this problem it might just be worth making a call to the tax office so that they keep a close eye on this company's returns!

Nick99

Afraid it looks as though he is on a looser!

Only chance to get out of it seems to be if he can show that, relying innocently on their error, he has placed himself in a situation that makes it impossible for him to repay.

Frankly, it's pretty hard for him to show that, but the argument might help to get him an agreement for a repayment over an extended period.

call_me_ishmael

maybe you lot can help me too. My contract of employment ended 22/12/04 and then I recieved £773 in January which I presumed was some sort of severence/bonus pay. I have spent this money. I have now recieved a letter from the BACS paying bank, saying they were "extremely sorry for this mistake" and they want the money back. It was their/my employer's mistake. I am now claiming job seeker's allowance and am in no possition to reimburse the bank. Who is in the right? Where do i stand?

Can any one help?

Poppy9

ishmael

I assume you were paid monthly in arrears i.e. you work all of Dec and then get paid? Did you have December pay? If you did get paid in December had they given you all your holiday pay? You are entitled to paid annual leave at the rate of 1.5 days per month work I think although they can stop you having paid leave until after 12 months employment(happy to be corrected on this point). Any paid leave not taken they have to pay you for on severence. You need to get your payslips out and see what severence pay they have given you. You can no longer be a temporary worker for more than 2 years and as such you are entitled to full time employee protection and benefits. If you were made redundant then you are entitled to redundancy pay.

Ali_Bali_2

It was their/my employer's mistake. I am now claiming job seeker's allowance and am in no possition to reimburse the bank. Who is in the right? Where do i stand?

You really need to find out who made the mistake. if it was your former employer then look at the defence of Change of Position or defence of Estoppel (info at www. government-accounting.gov.uk or ACAS site or page 56 of Labour Reasearch Department Law at Work book). Basically an employer may not recover an overpayment if;
a/ the employee was led to believe there was an entitlement to the payment and a right to receive it. -- Perhaps you were advised that severance pay or bonus was due?
b/ and had adjusted their spending. if employees genuinely believe that the money is due to them and spent it then the employer will not be able to recoup it. If however you knew it was a mistake and thought you had won a watch then your are out of luck. the best thing to do if that is the case is to tell them you are on Jobseekers and can't pay as this is the minimum the government say you need to live. And forget to tell them why you start work. I knew all this and would have used this for my son had he left the company but as he was staying i decided that it was better to repay.
I don't know where you stand if it was the bank's mistake but i assume they would also have to wait because of Jobseekers and might take a £5 per month payment plan. Try Citizens Advice for help.
Good Luck