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Recovery of overpayments of pay

DWP/BB/026/09

Policy, procedure and law

This circular provides branches with guidance on the recovery of overpayments of pay in DWP and CMEC including:

  • DWP and CMEC policy, procedure and advice
  • Government accounting
  • PCS legal advice

A copy of government accounting was e-mailed to branch secretaries together with this branch briefing.

DWP and CMEC policy and procedure

The DWP and CMEC guidance for recoveries from pay is published on the DWP intranet under pay and reward/salary. This includes:

  • Recovery from pay policy
  • Recoveries from pay procedure
  • Recoveries from pay advice

Where an overpayment occurs in any one pay month, an automatic adjustment is made from the next month’s salary to recover the overpayment in full (policy para 2).

If an overpayment occurs over several months or, occurs in one month but an automatic adjustment cannot be made, a letter is sent about recovery unless one of the two listed exceptions apply (policy para’s 3 and 4).

Other repayment arrangements, and the full details of the right of appeal, are published under recoveries from pay procedure (paras 2 to 4) including:

  • Recovery will not commence where an employee appeals, until that process has been completed (para 2.2)
  • Departmental error alone is not grounds for an appeal and therefore appeals received solely for this reason will not be accepted (para 3.1)
  • All appeals should be received in employee services within 28 days of the issue of the overpayments letter
  • If an employee remains dissatisfied, they can raise the matter under the grievance policy (para 4.3).

Government accounting

All government departments are expected to comply with the broad principles of HM treasury government accounting for recovery of overpayments of salary. Each case must be dealt with on its merits and when deciding on appropriate action, departments should consider:

  1. the type of overpayment;
  2. whether the payee received the money in good or bad faith;
  3. the length of time since the overpayment was made;
  4. any relevant personal circumstances of the payee, including defences against recovery;
  5. the cost-effectiveness of recovery action; and
  6. the need to deal equitably with overpayments to a group of people.

Where employees have acted in good faith they may be able to claim defences against recovery. However, good faith alone is not a valid defence against recovery (para 17.2.4).

The “other defences” against recovery explained under annex 17.4 are:

  • change of position,
  • estoppel, and
  • good consideration

Fraud and disciplinary action

The government accounting guidance on “bad faith” concludes with a paragraph on fraud (para 17.2.8). Departments are expected to take disciplinary action where the overpayment was obtained fraudulently – for example by dishonestly giving false information or failing to disclose information which the employee was under a duty to disclose. The key duty for employees is to check their pay statement and report an overpayment.

Hardship

Repayment may be waived if it would cause hardship, but hardship must not be confused with inconvenience. A case for hardship should be supported by reasonable evidence that the proposed recovery action would be detrimental to the welfare of the employee or their family.

PCS legal advice

Legal advice is provided in the PCS/LRD booklet, Law at Work 2008, (page 72) issued to branch secretaries. Key issues are:

  • A worker cannot bring a claim for unlawful deduction of wages in the employment tribunal if the reason for the deduction is that their employer has overpaid them (section 14, Employment Rights Act 1996). This is the case even if the error is because the employer had wrongly calculated the amount due. However, if there is a dispute and the worker believes they have not been overpaid, a tribunal can make a finding of fact as to whether or not there has been an overpayment – it just cannot decide whether any deduction was unlawful.
  • If the worker accepts that they have been overpaid once it is brought to their attention, their only route is the civil courts – where they may succeed if they can show that they had not realised there had been a mistake and had relied on the money thinking it was theirs, either by spending it or making provisions on the basis that they would be receiving that money (Kleinwort Benson v Lincoln City [1998]).
  • In Commerzbank v Price-Jones [2003], the Court of Appeal held that an overpayment which was clearly a mistake on the employer’s part could be reclaimed, unless the employee could show that it would be inequitable for them to have to repay it.

Legal advice is also provided on the national PCS website under legal toolkit/legal advice from Thompsons solicitors case ref: 1.2/ March 2004 and case ref: 4.5/ August 2004.

PCS support and advice

This Briefing replaces DWP/BB/133/07. Other related PCS guidance includes: