This article is for admins with the correct permissions who have overpaid an employee and need to fix the issue.
If you accidentally overpaid an employee, you can fix the overpayment with these methods:
Check if you can still cancel the payroll. This is always the best way to correct a payment if the payroll has not already been debited. You can re-run it after you cancel, and all payroll information will be saved (this may change the payday).
If it’s too late to cancel, try these options:
Reduce their gross wages on an upcoming payroll, or
If you do not have any more payrolls to run, you may still be able to correct the payroll.
If you paid an employee for a non-taxable expense or reimbursement by mistake, add a post-tax deduction to their next payroll to get the money back.
Before you reduce wages on a current or future payroll, make sure:
You overpaid the employee by accident (like a math or typing error), and
The employee agreed they were overpaid and should not have received those wages, and
The deduction follows wage deduction laws. Learn more in the Stay compliant with wage deduction laws section of the article.
Reduce gross wages during the payroll run
To reduce gross wages during the payroll run:
Go to Pay.
Click Run next to the payroll you want to run.
Edit the hours worked in the Regular hours column to adjust the Total pay column.
You may be able to edit the total pay directly. This depends on how your company sets up the employee’s compensation.
Add a personal note to the employee’s paystub that explains the pay reduction. If you skip this step, the employee could file a wage complaint against your company.
Include these details in the note:
The pay period(s) when they were overpaid
How much their pay was reduced this time
If your state law protects employees more than federal law, you must follow state law.
Federal law
Federal law allows you to deduct accidental overpayments from future paychecks. The law treats overpayments the same as wage advances.
This means you can deduct overpayments from future paychecks even if it brings the employee’s pay below minimum wage.
State law
State laws vary widely. Check with your state’s employment agency to make sure wage deductions are allowed and learn about any restrictions or guidelines.
What to check before you deduct overpaid wages
Get consent from the employee.
Many states require written consent from the employee before deducting overpaid wages from future paychecks.
Even if your state does not require consent, you may need to tell the employee about the deduction first.
We strongly recommend you create a written agreement. Have your employee sign it. The agreement should include:
The amount to be deducted
Which paycheck(s) it will be deducted from
Check minimum wage rules.
Some states require the employee’s take-home pay to stay at or above minimum wage. This means you cannot make a deduction that drops their wages below minimum wage.
Watch the timing.
Some states limit the amount of time that can pass between the overpayment and the deduction.
Generally, you should not deduct overpaid amounts if 90 days or more have passed since you overpaid the employee.
Check deduction amount limits.
Some states limit how much you can deduct from an employee’s wages for an overpayment. This could be a set dollar amount or a percentage of their normal wages.
If you’ve overpaid a large amount and cannot cancel the payment, we recommend working out a separate payment plan with the employee.
Know final paycheck rules.
Several states do not allow you to deduct overpaid wages from an employee’s final paycheck.
Add a note to the paystub or pay statement.
You must explain how you calculated an employee’s total pay. This is what a paystub does.
If you skip this step, the employee could file a wage complaint against your company.
In Gusto, you can add a personal note to the paystub. We recommend you include:
The pay period(s) when they were overpaid
How much their pay was reduced this time