If you paid an employee too much, how you fix it depends on whether the payroll has been debited from your company account yet. If it hasn't, cancel it and re-run it. If it has, recover the extra amount on the employee's next payroll. You can subtract the hours they were overpaid or reduce the amount directly.
First, cancel the payroll if it hasn't been debited yet
If the money hasn't left your company account yet, the cleanest fix is to cancel the payroll and re-run it with the correct amounts. Then there's nothing to recover later.
Go to Payments, open the actions menu on the payroll's "Company debit" row, and choose "Reverse payment" before the deadline shown.
Re-run the payroll with the corrected hours or amount, then approve it as usual.
Note: If the cancel-by deadline has passed or the payroll has already been debited, recover the overpayment on the next payroll instead. Follow the steps under "Reduce the overpayment on the next payroll" below.
Check the rules before you reduce anyone's pay
Recovering an overpayment from a paycheck is regulated, and the rules depend on where the employee works. Run through this before you make the change:
Confirm your state allows it. Federal law generally lets you recover an accidental overpayment from future pay, but many states are stricter. Where they are, you have to follow the state rule. When in doubt, check with your state labor agency or contact our team (see Contact Freedom support).
Get the employee's written consent where it's required. Several states won't let you reduce a paycheck to recover an overpayment unless the employee has agreed in writing first.
Keep the paycheck at or above minimum wage. Don't let the recovery drop the employee below minimum wage for the period. If the overpayment is large, spread the recovery across several payrolls instead of taking it all at once.
Tell the employee before payday. Let them know what you're recovering and why, in writing, before their next paycheck. Skipping this can lead to a wage complaint.
Recover it in the same calendar year when you can. Reducing gross pay on a later payroll in the same tax year keeps the employee's wages and tax withholding in balance. If the overpayment and the recovery fall in different years, or you've already filed for the quarter, contact our team instead (see Contact Freedom support).
Note: This article is general guidance, not legal advice. Overpayment rules vary by state and can change. Confirm the specifics with your state labor agency before you reduce anyone's pay, and see "Compliance requirements to know" below.
Reduce the overpayment on the next payroll
Go to Pay and find the next payroll under "Upcoming payrolls". Click "Review & approve" on it. If you use Autopay, the button may read "Review payroll" or "Approve manually" instead.
Click "Employee earnings" in the progress bar at the top, then find the employee who was overpaid.
On their card, find the pay line you need to change, such as "Hourly" or "Salary". Lower their pay by the amount you need to recover, using whichever method fits:
Subtract the extra hours. For an hourly employee who was paid for hours they didn't work, lower the Hours on that line by the number of hours that were overpaid. Best when the original error was a wrong number of hours.
Reduce the amount directly. Lower the Amount on that line by the exact gross dollar amount you're recovering. Best for a salaried employee (lower the Amount on their "Salary" line), or when you want to recover a specific dollar figure.
Click "Save & continue" on "Employee earnings" and again on "Contractor payments" to reach "Review & approve". Check the totals, then click "Approve payroll".
Note: Only recover what keeps the paycheck at or above minimum wage for the period. To take a large overpayment back over more than one payroll, reduce the pay by a portion each time until it's fully recovered. See Run payroll for how to edit earnings.
Compliance requirements to know
Overpayment recovery is regulated, and the rules differ by state. The points below are common examples, not a complete list. Always confirm your own state's requirements.
Federal law. The Fair Labor Standards Act (FLSA) generally treats an accidental overpayment as a wage advance, so you can recover it from future pay. Where a state protects employees more strictly, follow the stricter state rule.
Written consent and notice. Some states, for example California, require the employee's signed written agreement before you reduce their pay. Others, like New York, require advance written notice and a set procedure the employee can use to dispute the recovery.
Minimum wage. Some states (for example California) don't allow a recovery to drop the employee below minimum wage for the period. Keeping each paycheck at or above minimum wage, and spreading a large recovery across several payrolls, is a safe default everywhere.
How much per paycheck. A few states cap how much you can take at once. New York, for example, limits recovery to 12.5% of gross wages per pay period and requires advance written notice.
Time limits. Some states add deadlines. New York only allows recovery of overpayments made in the 8 weeks before the notice. Washington bars recovery if the overpayment wasn't caught within 90 days.
Final paychecks. Several states, including California and New York, don't allow overpayment recovery from a departing employee's final paycheck without a new, separate written agreement.
Tell the employee
Let the employee know before their next payday so the smaller paycheck isn't a surprise. In writing, tell them:
What happened: the overpayment, when it was, and the amount.
How you're recovering it: the hours or amount you're reducing, and on which payroll.
If it's spread over more than one payroll, how much comes out each time and when it will be fully recovered.
Keep a copy of the notice and, where your state requires it, the employee's written agreement.