Can your employer take money out of your bank account?

[Smitty]

Let's say you have direct deposit. If your employer makes a mistake and over pays you, do they have the legal right to take that money back out of your account without your approval? I know that if you don't give it back, things would be a bit unpleasant on the job, but there's no way they should be able to just go in and take money from your account without your OK, right?

[Bobotheoptimist]

Did you read your direct deposit agreement? Mine does clearly state they have indeed that right (although I don't have a copy handy so I can't prove it).

[don't ask]

Here in Australia it is customary for your employer to make arrangements for you to repay it. I once had to repay several thousand dollars but I knew about the error immediately and gave it straight back. A guy I worked with was paid a years salary one week and jokingly said he was going to pay it back at $20 a fortnight which supposedly was his right.

I used to be project manager on an early e-commerce implimentation and banks in Australia allow dishonours of direct debits days after the payment is made. I don't know how that would be classified. If my pay was incorrectly credited as $5,000, then that payment was dishonoured and a $3,000 payment substituted I imagine I would generally not notice until I received a statement.

[Gfactor]

As others have said, part of the direct deposit agreement usually gives them limited rights to reverse overpayments:

That if funds are deposited into my bank account in error, Ohio University has five (5) business days to reverse an erroneous entry under Section 2.5, Subsection 2.5.1 of NACHA Operating Rules.

http://www.finance.ohiou.edu/disburs...ositagree.html

In the event that funds are disbursed to you by direct deposit in error or recalculation, the University reserves the right to debit your checking account for the amount of overpayment. NACHA, the National Automated Clearing House Association, requires that we notify you before processing a debit against your account.

http://www.winthrop.edu/cashiers/dir..._agreement.asp

In the event of an error in the automatic deposit of my unemployment benefits to my account, I authorize my named
banking institution to correct the error in my account. I understand that if an error is made, I shall receive written
notification from the Arizona Department of Economic Security with an explanation of such error.

http://www.azdes.gov/esa/pdf/ddagree.pdf

The clearinghouse rule that permits this (NACHA 2.5.1) seems narrower than many employers would prefer:

An Originator may initiate an entry (referred to as a “reversing entry”) to correct an erroneous credit or debit entry previously initiated to a Receiver’s account. The reversing entry must be . . . transmitted or made available to the RDFI by midnight of the fifth banking day following the Settlement Date of the erroneous entry. The Originator must notify the Receiver of the reversing entry and the reason for the reversing entry no later than the Settlement Date of the reversing entry. An erroneous entry is defined as an entry that (1) is a duplicate of a previously initiated entry; (2) orders payments to or from a Receiver not intended to receive the transaction; (3) orders payment in a dollar amount different than was intended by the Originator. The Originator must notify the Receiver of the reversing entry and the reason for the reversing entry no later than the Settlement Date of the reversing entry.”

http://nacha.org/newsletter/Vol2%20Issue4%20Sep!Oct.pdf

Here is an interesting case that talks about the rule and the allocation of losses when the rule isn't followed: http://courts.state.ar.us/opinions/2...08/01-276.html

[Wee Bairn]

Absolutely. In fact, two weeks ago our company directed deposited everybody's check twice, and the next day took the extra one ut of everybody's account without asking permission first. Now, if I had closed the account before they took it out, it might have made things interesting.

[Gfactor]

Originally Posted by Wee Bairn

Absolutely. In fact, two weeks ago our company directed deposited everybody's check twice, and the next day took the extra one ut of everybody's account without asking permission first. Now, if I had closed the account before they took it out, it might have made things interesting.

Shagnasty's right about the next step there. They'd just take it out of some future checks. Here is an example of a statute permitting this:

408.477 Deductions from wages.

Sec. 7.

* * *

(4) Within 6 months after making an overpayment of wages or fringe benefits that are paid directly to an employee, an employer may deduct the overpayment from the employee's regularly scheduled wage payment without the written consent of the employee if all of the following conditions are met:

(a) The overpayment resulted from a mathematical miscalculation, typographical error, clerical error, or misprint in the processing of the employee's regularly scheduled wages or fringe benefits.

(b) The miscalculation, error, or misprint described in subdivision (a) was made by the employer, the employee, or a representative of the employer or employee.

(c) The employer provides the employee with a written explanation of the deduction at least 1 pay period before the wage payment affected by the deduction is made.

(d) The deduction is not greater than 15% of the gross wages earned in the pay period in which the deduction is made.

(e) The deduction is made after the employer has made all deductions expressly permitted or required by law or a collective bargaining agreement, and after any employee-authorized deduction.

(f) The deduction does not reduce the regularly scheduled gross wages otherwise due the employee to a rate that is less than the greater of either of the following:

(i) The minimum rate as prescribed by subsection (2).

(ii) The minimum rate as prescribed by the fair labor standards act of 1938, chapter 676, 52 Stat. 1060, 29 U.S.C. 201 to 216 and 217 to 219.

(5) An employee who believes his or her employer has violated subsection (4) may file a complaint with the department within 12 months after the date of the alleged violation.

(6) As used in this section, “employer” means an individual, sole proprietorship, partnership, association, or corporation, public or private, this state or an agency of this state, a city, county, village, township, school district, or intermediate school district, an institution of higher education, or an individual acting directly or indirectly in the interest of an employer who employs 1 or more individuals.

http://www.legislature.mi.gov/(S(fia...t%20of%20wages

As you can see, there are limits to the amount an employer can deduct from a single check this way, so it might take the employer a long time to recoup the benefits this way. But they'd get it back unless you quit, or were fired, in the interim. Even if that happened, you'd still owe them the money.

[Shagnasty]

They do have a legal right to the money like you say so that is out of the way. Assuming you still work there, a payroll adjustment for the next cycle is more likely.

However, I had a friend that I used to work with. Her former employer was a large bank. She worked with me for 3 years and then quit under some strained circumstances. She got overpaid by a few thousand dollars as part of her last check (it wasn't a pure mistake but there was some difference in opinion about what was the right amount). The company called the bank the next day to pull the money from her account. The request went back to her former employer, the bank, and one of her friends got the transaction to complete. She made a phone call instead and my friend pulled all the money from her account right away so the debit could not be completed. My company gave up at that point.

Apparently there is a way to do it but it has pitfalls. I work on payroll systems some and adjustments are much preferred for that sort of thing.