Overpaid employee, contract states correct hourly rate, but incorrect annual salary

Tweetinat

Wondering if I could get some very speedy advice before a committee meeting!

It's recently come to light that all staff employed by a pre-school have been overpaid because their holiday entitlement was calculated incorrectly.

In this pre-school, the staff are paid their holiday pay as part of their monthly salary, as obviously you can't take holiday during term time.

All staff are paid an hourly rate with set hours per week, and contracted to work for 38 weeks per year.

The contracts state the correct hourly rate, weeks per year and hours. However, it INCORRECTLY states an annual salary (which has been divided by 12 and paid monthly).

I am aware that by law, in usual circumstances, an overpayment of salary can be re-claimed by the employer. However, as the incorrect amount is stated in the employment contract and signed by both parties, I am not sure of the legal position on this and how it gets corrected.

Can anyone offer some advice please? Thanks in advance.

Xbigman

You say it states an hourly rate of pay. Does it specifically state whether or not this includes a holiday percentage and what the percentage is.

What I'm really asking is, does the contract contain all the figures for an employee to work out the salary is wrong?



Darren

Tweetinat

thanks Xbigman for the quick reply.

No, it does not mention holiday pay in relation to either the hourly rate or the annual salary.

It does state in a separate section that "you are entitled to statutory annual paid holiday"..."your paid holiday entitlement will be in accordance with the regulations established in the Working Time Directive 1998".

Does that help?

Tweetinat

The wording is "your rate of pay is £X per hour and your salary will be £Y, you will be paid by bank transfer. you will be paid monthly in arrears. Salaries are reviews annually".

Tweetinat

Elsewhere it states "you are employed to work a total of 38 weeks throughout this period" and elsewhere "you are required to work Z hours per week (for a total of 38 weeks through the period detailed in clause 3)".

Tweetinat

So, no, there's no way an employee could work it out unless they went to the HMRC annual leave entitlement calculator...

TBagpuss

It may be possible to correct it by informing those affected of the position and giving them the correct information and implementing it correctly in the future.

I think you would struggle to justify clawing it back when there doesn't appear to be any way they could have known that it was wrong.

But I think, as employers, you would be wise to get some proper legal advice before saying anything at all to the employees.

Masomnia

I think you need to get to the bottom of exactly why there is a discrepancy. Does the annual figure include payment in lieu of holiday and the hourly figure not? Is the annual figure assuming 52 weeks rather than 38, ie. should the figure be pro-rata?

I would also consider on what basis the job was advertised, offered and accepted. You'll have a stronger case if it was discussed in terms of an hourly rate rather than the annual salary.

I think getting legal advice is a good idea. My instinct is also that if you've made a mistake then look at correcting it going forward but not seek to claw it back - especially if it isn't a huge amount.

Tweetinat

Thanks both.

It's been calculated incorrectly because someone worked out holiday entitlement based on someone working full time, rather than just for 38 weeks per year.

Yes, the hourly rate is just that, but the annual figure was meant to include their holiday pay and that's where the mess up has occurred.

The job has always been advertised, offered and accepted on an hourly rate basis. No one has ever openly 'discussed' holiday pay other that to explain that it's accrued during term time and paid as part of the monthly salary.

My understanding is that we need to explain the situation and ask staff to re-sign contracts with the correct amount (obviously, they can refuse).

At most it is £290 per year for two people, but less for everyone else as they only work a handful of hours throughout the week.

My gut feel too is that we can't claim it back either, but I'm hoping that the staff will be pragmatic and sign new contracts. We're already making significant loss this year and this saving would go a long way towards our expenses.

TELLIT01

You know your staff better than we do, but I can see a problem in convincing some of them at least that their annual pay was entered incorrectly rather than the hourly rate. I certainly don't think there is any basis to claw back the overpayment, but you do need to get legal advice as it has the potential to go badly wrong.

Xbigman

I think the contract is very badly worded. It should clearly state hourly rate, holiday entitlement and total salary. By putting in a catch all term that holiday pay is in line with the working time directive might seem clever but in reality is meaningless to most people.

I agree a clawback is not a good idea but the correct salary being paid going forward should be acceptable.

Are you dealing with a union or individuals? A union will want legal advice and if they do get legal advice so should you.


Darren