If your employer overpaid you, federal law allows it to deduct the full overpayment from your future paycheck without your written consent. State law may say you have to give your written consent for the deduction to occur. If you were overpaid by direct deposit, your employer can reverse the transaction out of your bank account, but it must pay you for your time worked during the pay period.
If a company overpays you using direct deposit, it can legally reverse the transaction within five days of deposit as long as you will still get paid for all time worked. It can alternatively deduct the wage overpayment from your future paychecks.
Direct Deposit Reversal
If you have direct deposit, your employer can issue a reversal request to your bank, which then attempts to take the wages out of your account. The reversal must be for the full amount of the transaction that went into your account. For example, say you receive one direct deposit transaction for your regular salary and a different one for a bonus. If the bonus was issued in error, your employer can simply reverse the bonus out of your account. However, if both items were done as one transaction, a reversal must be done for the full amount. In this case, your employer should then pay you your correct salary via another method, such as a paper check.
Time Limit and Rejected Reversals
The bank can process reversals only up to five days after the check date. Your employer can reverse your wages without telling you during this five-day period. If the reversal fails because you withdrew the funds, your employer cannot go into your account and take any money out. The reversal has to match the actual transaction that your employer placed into your account. Otherwise, your employer must get a court order to take money out of your bank account.
If your employer wins a lawsuit against you and obtains an order to garnish your account, depending on state law, the bank may not have to notify you of the garnishment. If your account holds federal benefits, such as veterans, Social Security and railroad retirement benefits, those funds might be protected from garnishment. In addition, state law may exempt other funds from certain deposits to your account. The garnishment notice should provide instructions on how to file a claim of exemption to protect your exempt funds from garnishment. If the bank is not required to notify you, you may not know about the garnishment until the bank freezes your account.
To maintain a positive relationship with your employer, repay the money promptly. If a bank account reversal is not possible, depending on the overpaid amount, your employer may take the full amount from your next paycheck or over a series of paychecks. Your employer might allow you to offset the overpayment with your available vacation or leave hours.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.