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November 29, 2010
Questions from Our Readers: Employers Say, ‘Show Me the Money’

One way or another, some employers end up shelling out more money than they’d have wished or intended to an employee or two. Can they get it back? With some difficulty. Here are several recent subscriber questions on this topic, and our legal experts’ answers.

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Q: An employee needed us to void and reissue her paycheck due to bank fraud. We were unable to recoup the funds, and the employee is being terminated. What are the laws regarding withholding the funds due us from the individual’s last paycheck?

A: In the state where your employee works, deductions can be made from paychecks only if the employee has authorized it in writing—a common state requirement. As an employer, if you can’t get the authorization, you don’t have many options, other than suing the employee. Since bank fraud was involved, you may want to contact an attorney to ask about other alternatives.

Q: We have a part-time employee who submitted time sheets that totaled her daily hours for a period of time rather than showing them per day. Our payroll clerk didn’t notice this mistake and overpaid the employee for several weeks. She called the employee in to point out the error and had her sign a consent form that acknowledged the error and scheduled repayment—three sums, to be withheld from her next three paychecks. Is this legal?

A: An employer is generally free to ask an employee to return overpayments of wages. But the tricky part is trying to deduct it from paychecks or, in the case of direct deposits, having money removed from the employee’s bank account. However, a 2004 opinion letter from the Department of Labor, which is posted on HR.BLR.com, permits such paycheck deductions of overpaid wages, even if those deductions bring the employee below minimum wage for the hours worked.

Employers may not tack on any administrative or interest fees to these reimbursements though. State law where you do business also permits such deductions if the employee approves them.

Q: An employee exhausted his FMLA leave some time ago and is still out on disability. We’ve continued to pay the company premiums for his healthcare coverage since FMLA leave began. Can we get back from him the premiums we’ve paid since his leave allotment ran out? Shouldn’t we have offered him COBRA at that point?

A: Your options in this case are limited. Note that employers may require employees to repay the employer’s share of the premium if the employee does not return from a leave for reasons other than a continuation, recurrence, or onset of a serious health condition or other circumstances beyond the employee’s control.

As for offering the employee COBRA, three conditions must be met: (1) The employee was covered by the employer’s health plan on the day before the first day of FMLA leave; (2) the employee does not return to work at the end of FMLA leave; and (3) the employee would, in the absence of COBRA, lose coverage under the health plan before the end of the maximum coverage period provided by COBRA.

The IRS also states that state and local laws that may require group healthcare coverage for more time than FMLA requires do not affect when COBRA begins. And, the right to elect COBRA may not be conditioned upon repayment of any premiums paid by the employer for group health coverage during FMLA leave.

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