Overpayments: A Common Payroll Mistake with Real-World Consequences
Why Do Overpayments Happen?
Overpayments happen more often than many business owners realise. They can arise from:
Mistyping a pay rate
Forgetting to update the payroll system when someone leaves
Double-paying expenses or holiday cash-ups
Lack of communication between employee and employer, for example when an ACC payment is made as well as normal wages
Even with good payroll systems in place, overpayments can slip through – especially in small and medium businesses where people are juggling multiple roles.
The Risks of Ignoring an Overpayment
The consequences of mishandling an overpayment go beyond financial inconvenience. They include:
Legal risks – you cannot simply make deductions from wages without following the Wages Protection Act 1983. Recovery of overpaid wages is only allowed if the mistake was accidental, the employee is notified within strict timeframes, and repayment occurs within two months.
Good faith spent – if an employee reasonably spends the money after being reassured or left unaware of an error, it may be unfair to demand repayment (as seen in the Air New Zealand Foai case).
Employee experience – the way recovery is handled has a big impact on trust and morale. A poorly managed process can damage relationships and even lead to complaints.
Real NZ Cases That Hit Home
Several recent Employment Relations Authority cases highlight how important communication and process are:
Stages Civil & Electrical Ltd vs Cook – a payroll error created a $7,165 overpayment. The employer notified the employee promptly but received no reply. The Authority ruled in the employer’s favour, allowing recovery.
Hardaker v LongChill Limited [2021] – an employee continued being paid for 35 weeks after resigning, totalling $27,115. With no communication from the employee despite repeated attempts, the Authority ordered repayment within one month.
What To Do If It Happens in Your Business
If you discover an overpayment, it’s important to act quickly and carefully.
Best practice steps include:
Act fast – notify the employee promptly and within legal timeframes.
Communicate clearly – explain what happened in writing and outline the recovery process.
Be fair – consider offering a repayment plan, especially if the amount is significant.
Don’t assume – you cannot automatically deduct from wages without proper consent.
Escalate if needed – if there’s no agreement, the Employment Relations Authority may become involved.
Why Expert Help Matters
Recovery of overpaid wages is possible, but the process is more complex than many employers expect. Strict laws, employee protections, and relationship management all play a role. One wrong move can lead to unnecessary disputes or even fines.
At Konnect Koncepts, we help businesses navigate payroll challenges with confidence. Our support includes:
Creating simple overpayment policies for employee handbooks
Drafting communication templates that are clear and compliant
Guiding you through the deductions from wages process
Advising on timing and legal requirements
Helping you put systems in place to prevent overpayments
If you’ve found yourself in the tricky situation of an overpayment, let us help you sort it calmly, compliantly, and with care.
