Correcting a payroll error after the run: overpayments and underpayments

Payroll errors happen — a wrong rate, missed hours, a deduction that didn’t apply. What matters is correcting them cleanly, because a rushed fix often creates a second problem in the tax figures. Here’s how to handle both directions.

Underpayments: pay the difference promptly

If an employee was underpaid, the fix is straightforward but time-sensitive: pay the shortfall as soon as possible, usually as an off-cycle payment, with the correct taxes withheld on the additional wages. Don’t simply roll it into the next cheque without adjusting the tax — the withholding has to reflect the actual pay period and amount.

Overpayments: recover carefully

Overpayments are trickier, because you generally can’t just claw the money back from a future paycheck without following the rules. Many states regulate how and when an employer may recover overpaid wages — often requiring written agreement, advance notice, or limits on how much can be recovered per period. The right sequence is usually:

1. Confirm the overpayment amount and how it happened.
2. Notify the employee and agree a recovery method that complies with your state’s rules.
3. Adjust the payroll records and the associated taxes so the corrected wages are reflected accurately.

Don’t forget the tax side

Every correction has a tax consequence. Withholding, and the employer and employee shares of payroll taxes, all move with the corrected wages. If the error crossed into filed figures, corrected returns or year-end forms may be needed — something to catch before your year-end close.

This is general guidance, not legal advice — wage-recovery and correction rules vary by state, so confirm the specifics for each employee’s location.