How to Resolve a Pay Dispute

Allen Smith, J.D. By Allen Smith, J.D. April 15, 2022
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​Errors happen, even with payroll, but speed is of the essence in correcting them to avoid further eroding worker trust and risking litigation. The steps for correcting pay disputes will vary depending on whether the error is an overpayment or underpayment and whether the disputes involve legal matters.

"When it comes to pay, even small errors can have a detrimental impact on an employee's trust in their employer," said Craig Boelte, CFO of Paycom in Oklahoma City.

"If it is a simple mathematical error or a failure to include a pay increase or hours worked, check the math and make the correction," said Ann Wicks, an attorney with Withersworldwide in San Francisco. "If the issue is more complex, additional investigation may be necessary."

For example, some disputes involve whether an employee worked overtime, worked through lunch, failed to punch in or out, or was asked to work off the clock, she noted.

"Those types of issues will require you to talk to the employee, the manager and maybe some of the others in the department or work unit to determine how much time was worked," Wicks said.

Technology may illuminate the truth, as well. "Electronic badges, cameras and equipment logs may reveal when the employee was onsite, when they logged in or out, and if they were active on the computer or other equipment," she said. "While uncommon, some managers will ask employees to work off the clock or through lunch and then deny they did so."

For more complicated situations, such as a commission dispute, an employer may have to research the contracts, identify the people who worked on a deal and find out any relevant facts that may influence whether the commission is owed.

"Pay disputes can escalate quickly and motivate employees to seek out an attorney," Wicks cautioned. "Responding quickly, maintaining good communication and ensuring the employee is paid correctly can avoid that outcome."

Good Communication

"Ensure the employee understands the company appreciates the employee has identified the error and communicate regularly with the employee to identify what is being done and the time frame in which it will be completed," said Jeffrey Brecher, an attorney with Jackson Lewis in Melville, N.Y.

He recommended that the employee explain in writing exactly what the complaint concerns, so those who are investigating it understand the issue.

"If the employee complains to a manager, who then relays the issue to HR, who then contacts payroll—by the time the person actually investigating it receives the message, there could be misunderstanding [of] the issue, like the game of telephone," he said.

If getting the employee to explain the problem in writing isn't an option, have the person receiving the complaint put the issue in writing and have the employee confirm that the issue has been correctly identified.

"The employer should ask the employee for any documents the employee has corroborating the employee's claim," said Jo Bennett, an attorney with Schnader in Philadelphia. "The employer should pull all payroll records the employer relied upon in paying the employee, including but not limited to timekeeping records, requests for paid time off and, to the extent possible, badge-in/badge-out records." The documents needed may differ depending on whether an employee is exempt or nonexempt.

If the employee was right about a paycheck being an underpayment, "let them know that you will be fixing the error and when they will be paid," Wicks said.

"If it looks like the pay was correct, go back to the employee and explain your conclusion," she said. "If the employee disagrees, ask if they may have made a mistake or if there is additional information that might alter your conclusion."

Sometimes the employee won't agree that they were paid correctly even if there is concrete evidence that they were. "If so, try to understand why that is and determine whether there's a mutually satisfactory way to resolve the situation. This is particularly important if the employee is saying they worked but the manager disagrees."

Managers make mistakes or may not realize an employee has been working. "Either way, you need to get to the bottom of it and make sure that the employee is paid correctly," she said.

Correcting Pay

If there was an underpayment, "the employer should immediately make sure the error is corrected and communicate the correction to the employee," Wicks said. This may require an extra paycheck to be issued.

She added that, "The paystub should also be corrected to ensure that the employee is provided with the corrected information and the business records are accurate."

Wicks noted that if an employer uses a third-party payroll company that says a corrected paystub can't be issued, "you should question whether that is true and work to get a corrected or supplemental paystub issued."

Employers may generally recoup overpayments under federal law, Bennett said. "But employers often must meet certain conditions under state law before deducting wages from an employee to recoup an overpayment," she said.

If there was an overpayment, the employer should ask the employee if a deduction of the overpayment from their next paycheck would cause a financial burden, according to Adam Gordon, co-founder of PTO Genius in Miami. "It's possible the employee may have already spent the additional amount," he noted. "If they did, try to arrange installments that you both agree on."

Audits

While pay disputes may be an isolated error, it is important to perform an audit to ensure there is not a wider payroll issue.

"Find the root cause of the error quickly, then determine what other mistakes may exist and if more employees could be impacted," Boelte said.

In addition to periodic spot checks of payroll, "employers should review a random sample of several employees' payroll checks to determine whether the issue impacts one employee or more," Bennett said. "Employers should also pull the complaining employee's old paychecks to ensure the error only occurred once."

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