Question: Is there a statute of limitations regarding when employers must inform employees of an overpayment of wages, and can employees be held legally accountable for paying the overpayment back?
Answer: The Federal Labor Standards Act (FLSA) doesn’t address how long an employer has to recover overpaid wages. In the absence of federal law, state law governs the statute of limitations for collecting overpayment of wages (if such limitations even exist) and how an employer must go about recovering such overpayments.
Idaho law doesn’t provide a deadline for when an employer may recover overpaid wages from an employee. However, you should initiate recovery as soon as possible. Idaho law doesn’t require you to inform the employee that you are seeking to recoup the overpayment. But, as a best practice, you should still inform employees of such paycheck deductions.
As for recovering the overpayment, the U.S. Department of Labor (DOL), which oversees enforcement of the FLSA, views overpayments as “loans or advanced wages” that an employer may recoup by reducing the overpaid employee’s subsequent paychecks. Under this “loans or advanced wages” interpretation, the FLSA allows paycheck deductions to occur even if doing so would put the employee’s wage below the minimum wage.
However, many states—including Idaho—prohibit employers from making such deductions if doing so would put the employee’s wage below the minimum wage. In cases where a lump sum deduction would result in the employee’s wage falling below the minimum wage, employers in states like Idaho should parse out overpayment deductions over multiple paychecks.
It bears repeating that this is a state-by-state issue. For example, in Washington state, an employer is given 90 days to recoup overpayment from an employee, and the employer may only seek such recovery if the overpayment was “infrequent and inadvertent.” In California, employees must authorize any deductions in writing. Therefore, if you are seeking to recover overpaid wages, you should consult an attorney knowledgeable about the relevant state wage laws.
Garrett Kitamura is an attorney in the Boise office of Parsons Behle & Latimer. He can be reached at gkitamura@parsonsbehle.com.