State of California
If an employer makes an error on their part and pays you for a few extra hours that you didn’t work, then later discovers the error and deducts it from your next check, would this theoretically be legal?
They can in Texas. Matter of fact, you can probably count on it.
I had this very situation happen to me once. I was working as a temp, the temping agency accidentally sent me two paychecks for the same week but at different times. Me, not being the best at balancing my finances was happy to have a little extra money and cashed the check. A few weeks later I went to pick up that weeks pay, my paycheck was given in the amount of ~$50 (expected ~$400) and after much heated discussion the error was understood and I was out a paycheck. I was angry but there was little I could do.
This was in Colorado, about 2000
Why wouldn’t it be legal?
I happened to me from my California parent company. They overpaid me and then deducted it from the next paycheck. I’ve heard of cases where banks put too much money in a person’s account and then can make people repay the money.
It does remind me of an old joke.
I’ve had it happen twice.
The first time was in the private sector, and they just pulled it out of my next pay. The second time was in the public sector, and I was docked some piddling amount like $10 each pay for a long time. It worked out like an interest-free loan. I do like working for the gubbermint. 
If you have direct deposit, read the agreement you signed. It likely (in my experience, based on the last 3 jobs I’ve had) gives your employer permission to yank overpayments right out of your account, not even waiting for the next pay cycle.
IANAL, but I suppose, if you put up a stink about it, they could release the second (intact) paycheck, and then sue you for refusing to return the original overpayment, which would cost you and them a few thousand dollars in court costs, which they would ask to have included in the restitution they’d ask the court for, and if they won, you’d be out the overpayment plus the court costs.
The usual thing in Australia is that the employer is expected to negotiate how you will repay the overpayment because many people (particularly married couples) simply use what ever is available in the belief that all is well and that all the money is rightfully theirs. As TLD said government bodies are inclined to just take a minimum amount until it is repayed to not make waves. Usually people want it all cleared up before the end of the tax year or it makes for problems.
Years ago when I was working only 3 days a week I relieved in a higher position for a long long time. When I finally put in a claim for about 9 months of higher duties, they worked it out like this:
Nine months in Position X (72,000 p.a) = 54,000
My pay for 9 months Pos Y (68,000 p.a) = 30,600 (because I was only working 3 out of 5 days)
Allowance = 23,400
I notified them of the error and made arrangements to repay it. At the time I had to do it over several weeks due to restrictions on my daily withdrawals from the account the money was in.
One time I was chatting to the boss of the pay section while we did another transfer. I mentioned what a pain in the bum it all was and how sometimes I wished I just left it until they found the error. She informed me that because of the nature of the error and the fact that it had all been checked, it was almost impossible for anyone to have found it if I hadn’t informed them because they were paying me the salary of a fully funded audited position. As it happened everyone but me knew I could have just kept the money so I was credited with far more honesty credits than I actually earned. So lets hope Earl is right.
I had this happen to me as a teacher in California. They paid me one month for an extra assignment that had ended the previous month. They caught it and gave me the choice of either giving them a check for the difference or having it taken from my next paycheck.
OK, this is a story I heard at work, from a fiscal officer. She said that if our company overpays someone and that person cashes the check, the person is under no obligation to pay it back. They could try to work something out where the employee paid it back in future deductions but barring that they would have to sue and usually it’s not worth it.
It came up because payroll accidentally sent an employee a check for $1M plus and he brought it back, but if he hadn’t, he could have kept it and agreed to repay in tiny installments.
A lot of banks will let you keep errors in your favor (to a reasonable degree) as a matter of policy. My stepdad once got $1K deposit he did not make, he called Wells Fargo and they said they’d look into it. In a few weeks a letter came stating that they’ve isolated the error and as a matter of policy are letting him keep the money.
I don’t believe this for a second. The employee and employer have a contract which specifies compensation. If the employee is overcompensated I don’t believe for a minute that the employer couldn’t adjust the next check to balance the overpayment. I don’t believe for a second that an employee who received a million dollar paycheck and cashed it, knowing he wasn’t entitled to it, wouldn’t be prosecuted for theft.
Or, to make a long story short, cite?
The accounting department at the company where I work routinely makes mistakes like this. A couple times a year on payday we’ll check our accounts to find two paycheck deposits for identical amounts, when there should only be one. Unfortunately the error is usually corrected within a week and the second deposit is retracted (everyone is required to have direct deposit where I work).
They also occasionally screw up our vacation & sick time accrual. And recently they forgot to deduct everyone’s 401(k) for that pay period and told us they had no plans to correct it on the next paycheck. I think our accounting department is staffed with monkeys.
In Canada, an employee can deduct wages paid in error, as a general rule. There are some exceptions, so talk to a tax lawyer before you do this one at home. 
But from what I’ve seen, usually the accounting department will talk to the person in question, and arrange for a repayment schedule if the amount is big enough, or just to let them know if it’s a small amount. It happened to me once, and they took it off my final check when I left.
I used to work with our payroll department for our nation-wide company of about 30,000 employees (including offices in California).
Overpayments were pretty common. In many cases the local office would approve an employee to take an unpaid leave of absence, but notify Payroll too late in the cycle to prevent them from being paid. Whatever the cause, we would routinely deduct the overpayment from their next check.
In the few cases where employees were greatly overpaid over a period of time (like, >$10k), we would let them work out a payment schedule equal in length to the amount of time they received the extra payments.
The only times we didn’t recover overpayments were when an employee was overpaid and then left the company. Legally, we had the right to demand repayment, but it was not worth the court costs (and as a rule my company likes to stay out of the courts anyway).
Yep, that’s why I added the obviously not-clear-enough caveat at the beginning.
Unless your deficiency was pretty substantial, I can’t see the lawsuit happenning. Might happen if the overpayment was huge, but if it was one extra pay, especially a weekly or every-other-weekly check, I can’t see it being worth the company’s time and money.
Just because they have a judgment doesn’t mean they’ll be able to collect… especially if they fired you and you’re now unemployed.