How Long Does an Employer Have to Correct a Wrong Payroll?

Payroll errors can be a source of significant frustration for employees, impacting their financial stability and trust in an employer. When a mistake occurs on a paycheck, a common question arises: how quickly must an employer correct it? The timeframe for resolving errors is not always simple, as it depends on the specific type of payroll discrepancy and the legal framework governing employment within a particular jurisdiction.

General Rules for Payroll Correction

There is no single federal law that establishes a universal deadline for employers to correct payroll errors. The required timeframe largely depends on the laws enacted by individual states. Additionally, an employer’s internal policies or any existing collective bargaining agreements can also influence how quickly such mistakes are addressed. Despite the absence of a federal mandate, employers are generally expected to correct payroll discrepancies promptly, often by the next scheduled pay period.

Addressing Underpayments

When an employee receives less pay than they are owed, known as an underpayment, legal requirements typically demand swift action, with many states requiring employers to correct errors quickly, often by the next regular payday. Some states may allow correction by the next regular payday if the underpayment is less than five percent of the employee’s gross pay. However, if the underpayment is more substantial, some state laws may require correction within a shorter timeframe, such as three business days after notification.

For an employee’s final paycheck upon termination, immediate correction of any underpayment is generally expected to avoid additional penalties. Employees should notify their employer as soon as they identify a shortfall on their pay stub.

Addressing Overpayments

Overpayments, where an employee has been paid more than they are owed, are often governed by different and sometimes more restrictive rules for employers seeking to recover funds. Federal law, specifically the Fair Labor Standards Act (FLSA), does not require employers to obtain written authorization from employees before deducting overpayments. However, many state laws differ and commonly require employers to obtain voluntary consent or written authorization before making deductions from future paychecks.

Some states categorize accidental overpayments as a form of wage advancement, allowing employers to deduct these amounts from future pay without explicit employee authorization. Employers must still ensure that any such deductions do not reduce an employee’s pay below the federal or state minimum wage for that pay period. For significant overpayments, employers may need to recoup the amount over several payroll cycles to minimize financial hardship on the employee. Some states also set limits on the percentage of gross wages that can be deducted in any single pay period, such as 12.5% in New York for clerical errors.

What Happens If Errors Are Not Corrected

If an employer fails to correct payroll errors within the legally required timeframe, employees have various avenues for recourse, and employers may face significant consequences. Employees can file a wage claim with their state labor department or the U.S. Department of Labor (DOL). These agencies investigate complaints and can compel employers to pay owed wages. Employers who do not comply with wage laws can incur penalties, interest on unpaid wages, and potentially liquidated damages, which can be an amount equal to the unpaid wages. Statutes of limitations, which typically range from two to six years depending on the state and the nature of the claim, dictate how long an employee has to file a claim for unpaid wages.