How businesses can go about recovering debt from former employees

Once a person has left a place of work, it seems they are no longer beholden to their former employer and beyond the reach of the powers that be within an organisation.

When it comes to money that’s owed, businesses may feel that there is little that they can do to get that money reimbursed. After all, once an employee has gone, disciplinary action is no longer an option so what can happen if they ignore their entreaties? There is, however, legal recourse available in this situation.

So, what are the options open to out of pocket employers? Well, much of it depends on the reason/cause as to why the money is owed.

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Let’s look at the most common examples: 

1. Terminations have either not been flagged up with the HR or salary department or this has occurred sometime after the event.
2. Redundancies may have been overpaid.
3. Holiday pay overpayment frequently occurs where an employee has taken their full annual holiday entitlement and terminates some months into the contract.
4. There are many schemes whereby employees pay through the payroll for certain products, for example laptops and bicycles. On terminating, there can be monies outstanding and owed to the employer.
5. Fraud can be prevalent in some organisations whereby time sheets have been filled in when an employee has worked at a customer’s premises – for example security staff or staff employed as temporary personnel through recruitment agencies.

When it comes to incidents of the above, we are often asked by our clients: “Can we reclaim this money from an employee?”

The short answer is yes.

But there are methods or considerations to take into account when looking to do this. The first I would always state is that, when it comes to collecting an outstanding debt, common sense has to prevail. There are mitigating factors to consider as to how you go about getting it back and what the likelihood is of succeeding.

A key one is the length of time since the overpayment. For instance, if an employee has been overpaid in the last week or two it wouldn’t be unreasonable to require the whole amount to be repaid immediately. However, if the overpayment occurred several months previously it may be that the former employee doesn’t have the resources to repay the money in one go and installments should be negotiated.

One of our major clients had a huge problem relating to redundancies and asked us to resolve it for them. The client in question had made several hundred employees redundant who had all been overpaid twice the amount they should have received. As a state controlled body, the organisation was also paying exceptionally generous terms which meant the total amount outstanding was substantial.

The first step in this scenario was to immediately set about confirming identities and addresses before making contact with the former employees. When debtors are approached by legal representation at this stage, the money is usually successfully collected as was the case here. However, one former employee in this instance had disappeared abroad owing more than £30,000. He was still able to receive our e-mail communications chasing the outstanding monies, which he eventually responded to while at the base of Kilimanjaro in Tanzania, in which he cheekily asked us to pass on his best wishes to the company, thanking them for the holiday of a lifetime and to let them know that the money was now all gone. Not what our client wanted to hear but it did lighten our day somewhat!

In this particular case, our client decided not to pursue the debt any further as they were – perhaps unnecessarily – concerned with their public image and the attention that could possibly be drawn to the case through the press.

From a legal perspective, you are within your rights to claim the money back. This could be done by obtaining a charging order against an employee’s property. While this is unlikely to be followed by an Order for Sale, it may secure the debt in the event of a re-mortgage or future sale of the property. If this isn’t a viable option, a possible alternative would be in the form of deducting money from future wages via an Attachment to Earnings. This is an option if the former employee has found alternative employment. Unfortunately though, the returns from this can be so minimal that many businesses are not prepared to follow this route.

Court action is a possibility if necessary, with enforcement through the court bailiff or High Court Enforcement Office. Ideally though, it wouldn’t get to this stage and should really only be undertaken to claim substantial overpayments. After all, a business wouldn’t want to be labelled as bullying for a heavy handed pursuit of relatively minor debts through the courts.

There are preliminary alternatives that can avoid court, however the process behind these often isn’t straightforward. It’s unusual for HR or payroll departments to have the procedures or skills to successfully recover monies owed by former employees who may be using any obstacle to avoid paying back the money.

A common initial obstacle is where the former employee is no longer living at the last address on a company’s records. In this case, many HR departments don’t even get off the ground when chasing these debts. But that shouldn’t be the end of the road – just because HR departments don’t have the necessary skills, doesn’t mean it isn’t possible. External debt collectors are experienced in tracing such individuals and should be able to handle it efficiently.

Even if a firm has an internal credit control department, it might be best to look at external options for former employee debts. The credit control department is often used to dealing solely with B2B debts and can be unhappy dealing with this type of debt or not pursue it with the vigour that the firm is entitled to.

Going to the right external debt collector should give you access to the necessary people skills and systems to be effective, whilst still protecting the good name of the company.

*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.