Imagine how stressful this hypothetical situation would be: Natalie’s boss called her into his office recently and gave her some bad news. Thankfully, it was not a layoff, but it was something almost as nerve-wracking — and potentially financially devastating.
Her boss said the payroll department had made errors over the past several months, and, in total, they’d overpaid her by about $7,000 over the course of a year.
Natalie was shocked. Since she works two jobs, she hadn’t noticed the incremental overpayments, and she admitted she hadn’t been reviewing her bank statements every month.
Her boss then gave her even more disconcerting news: Natalie can either pay all the money back, or work for free until she makes up the hours. Natalie lives paycheque to paycheque, and she can’t afford a lump-sum payment of $7,000. Her boss didn’t seem to think a repayment plan would be possible.
Natalie didn’t know what to do. She wasn’t sure if her boss could legally compel her to work for free, or pay the money back at all.
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Can your employer legally claw back money?
Under the Canada Labour Code, federally regulated employers can use payroll deductions to recover funds in the event of an overpayment (1). However, there are also laws at the provincial level, and these vary considerably. In some territories, for example, it is illegal to make any deductions to recover overpaid funds. In other provinces, employees must provide written consent to an agreement on recovering wages.
Natalie lives in Alberta, where there law is more permissive for employers who have overpaid employees. In this case, her employer can deduct from her earnings going forward due to payroll errors, and does not require her written approval. However, her employer must provide her written notice they are going to do this, and can only claw back overpayments made in the last six months (2).
While it’s possible for her employer to request the lump sum, she does not have to agree to it if it’s not feasible for her financially.
What you should do if this happens to you
Natalie’s boss’s suggestion that she work for free to pay off the wage overpayment is illegal (3). Also, because she lives in Alberta, her boss can only recover the last six months of overpayment. The meeting with her boss also doesn’t count as official notice; her employer needs to provide her with a document that meets the legal guidelines in her province.
Natalie should let her employer know that asking her to work without pay is a violation of labour laws. It is her employer’s responsibility to ensure their payroll is accurate, serve her proper notice about the overpayment and agree on a garnishment plan that is not detrimental to Natalie.
She most likely won’t face a wage deduction that would leave her unable to cover her bills. Still, her wages will be impacted, and she needs to budget accordingly. Natalie may need to cut back on discretionary spending until her paycheques are back to the normal amount.
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In the future, checking both her pay stubs and her bank statements will go a long way in preventing this kind of unexpected loss of income — which will also help you uncover if your employer is underpaying you. An Ernst & Young report from 2022 found that the average company’s payroll accuracy is only 80.15%, which means you could be missing out on wages you’re owed if you’re not watching your bank balance (4).
If you believe your employer has made deductions from your pay illegally, you can file a complaint with the Labour Program. You can also consider consulting with a labour and employment lawyer if your claim is complicated or exceptional.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Canadian HR Reporter (1); Alberta (2); Samfiru Tumarking (3); Human Resources Director Canada (4)
This article originally appeared on Money.ca under the title: My boss told me I was overpaid $7K and now I have to give it back or work without pay. Is this legal?
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.