How to Handle Accidentally Over or Underpaying an Employee

how to handle accidentally over or underpaying an employee It's every business person's worst nightmare. Payroll passes and you realize an employee didn't receive their fair pay. Whether you've overpaid or underpaid an employee, coming to a quick and satisfactory resolution is essential. Follow these simple steps to resolve an erroneous payroll discrepancy fast. 

Research the Laws

Even if you haven't experienced a pay discrepancy yet, you should research all government and local laws before you ever run into this mistake. If you fail to pay employees their pre-agreed upon salary, you may be required to follow certain steps to recompense your employee within a specified timeframe. If you overpay employees, on the other hand, you may or may not have the ability to reclaim those funds through payroll. Knowing the laws can help guide how to find a fair solution to an over or underpayment.

Start with federal laws and work your way down to get a solid understanding of what is required to set the situation right. If you find the laws convoluted, consider sitting down with a local lawyer who specializes in labor laws to get a professional assessment of how to handle over or underpayment of employees. While this may cost money upfront, it can save thousands in litigation costs for failing to follow labor laws. 

Contact the Employee

The first step in any case of under or overpayment is to contact the employee, if you weren't alerted to the discrepancy by the employee first. Keeping an open dialog with the employee is pivotal to resolving the issue and ensuring a continued amicable working relationship. If you have accidentally underpaid an employee, work with them to swiftly resolve the discrepancy. Many employees have limited savings and will require that money to pay bills immediately. If you have overpaid an employee, sit down to discuss repayment options. Even if local laws allow you to remove those funds from the employee's next paycheck, it's in the best interest of your working relationship to discuss with your employee what amount would constitute a comfortable repayment plan. Keeping transparent with employees about mistakes is essential to quickly resolving the issue. 

Collect All Documentation

Once you've spoken to the employee and understand the laws you need to follow, collect any documentation available. It may be helpful at this point to also write up an explanation of what occurred with signatures from the employees involved. This creates a clear narrative and allows you to examine and improve the process in the future. 

If an employee has already left the company, it may be hard to settle payment issues. Clear and concise documentation can aid in a legal trial to recoup company funds or help former employees to understand the situation and why they are receiving or must pay additional money. 

Fix the System

Once the payment issue has been resolved, it's your responsibility to prevent it from happening again. Payroll software is a great way to ensure that payroll is completed appropriately and can be easily reviewed. Also creating internal checks prior to processing payroll can ensure redundancy that catches clerical mistakes. Focus on the process rather than trying to place blame. If the situation could happen once, it could happen again. It's imperative to fix the process that precipitated an over or underpayment through automation and policy. 

Mistakes happen, even in business. Understanding not only the legal requirements of your business but the ethical requirements is essential towards making sure those mistakes don't spiral into more expensive and devastating consequences. Use these steps to navigate the uncomfortable situation of over or underpaying an employee.