Recovery of Overpayments to Employees

DEPARTMENT OF ADMINISTRATIVE & FINANCIAL SERVICES
Bureau of Employee Relations
Telephone (207) 287-4447
FAX (207) 287-4452 TDD (207) 287-4537

No.: OSER-43

Date: June 1, 1990

Subject: Recovery of Overpayments to Employees

To: All Holders of Employee Relations Manuals

From: Ken A. Walo, Director, Bureau of Employee Relations

Recent legislation (26 M.R.S.A. Section 635, effective July 14, 1990) has clarified the procedures that employers must use to recover overpayments made to employees because of employer error. This law and procedure must be followed if the employee did not knowingly accept the overcompensation. If the overcompensation is less than 15% of the correct net amount of the employee's compensation, the employer must prove by clear and convincing evidence that the employee knowingly accepted the overcompensation. Presumably, if the overpayment is more than 15% of the correct net amount of the employee's compensation, the employee knowingly accepted the overcompensation.

This law does not apply if the employee knowingly accepted the overcompensation. However, failure to follow the procedures set out in the law to recover overpayments where the employee did not knowingly accept the overcompensation will result in the employer's forfeiture of all claims to the overcompensation. To implement the statute the following principle should be followed when overpayment occurs without the employee's knowing acceptance.

An employer who has overcompensated an employee through employer error may not withhold more than 10% of the net amount of any subsequent pay without the employee's written permission, except that, if the employee voluntarily terminates employment, the employer may deduct the full amount of overcompensation from any wages due.

The law makes it clear that overpayments to employees may be recovered by the employer if the proper steps are followed. To insure recovery Departments should talk to employees who have been overpaid and work out an arrangement to recover the overpayment. If the overpayment was less than 15% of the normal net pay and if no arrangements are made with the employee, do not withhold more than 10% of the employee's net pay to recover the overpayment.

If you have any questions about the implementation or administration of this procedure, please contact the Bureau of Employee Relations at 289-4447.

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Recovery of Overpayments to Employees