What is an employee’s legal obligation to pay back over a year’s worth of incorrect pay?

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What is an employee’s legal obligation to pay back over a year’s worth of incorrect pay?

Employer told employee they were being paid an incorrect hourly rate, employer increased rate and paid out back pay to employee. Employer later over a year after back pay had been applied informed employee that the original amount was correct.

Asked on February 14, 2017 under Employment Labor Law, Kentucky

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

If it was provably an *error* and not a change of mind, the employee would have to repay it: the law is clear that an error does not entitle you to keep money. But the law is also clear that thinking better of what you paid and deciding you paid too much is not an error, and the employee could keep the money. Examples--and I will use a 50 week year, 40 hour week for mathematical simplicity:
The employer tells you that you will earn $40,000 per year in your job as an hourly employee; they are clear about it, you agreed to it and do not dispute it. However, instead of paying you $20/hour (which equals $40k year in our example), he does the math wrong and pays you $25/hour. This is a clear error: it's more than he offered, more than you agreed work for. The employer is entitled to get the extra or surplus back.
However, say instead he told you that you were earning $50k/year. After a year, he realized that he told you the wrong amount: people in your position usually get $40k/year. That is not a mathematical error, where you received more than you had agreed to work for; it's the employer rethinking what he should have offered you. But rethinking is not allowed; he has to honor what he'd offered and paid. 
So if the overpayment came from a math or similar mistake when you and he both knew how much you *should* get, the employer is entitled to the money back. But if it's from him changing his mind, he's not entitled to it.


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