can an employer change your rate of pay retroactively and make you pay back the difference?

by Alison Green on November 25, 2013

A reader writes:

My boyfriend and I are really concerned at this moment. Three months ago, his company told him they were giving him a raise of $1.50/hour. This also came with the burden of working two locations a week. However, just today, they “realized they made a mistake” and that at his position, he’s not supposed to be paid that much. He doesn’t have this in writing; it was jut a verbal agreement.

Now they’re talking of the possibility of the company cutting their losses at my boyfriend’s expense. This means that he will personally have to pay all the extra money back, by them taking it out of his paycheck.

Mind you, we recently moved in somewhere we can only afford with his current income. Also, I’m pregnant and due in 4 weeks! Is his company allowed to do this? If not, is there someone we can speak to ? If they decide to do this, can we take legal action? Why should we suffer from their mistake after months, and also why should they have the audacity to make him pay it back?

They can absolutely change his pay at any time going forward. But they cannot change it retroactively. After all, if I hire you for $10/hour and then in six months I change my mind and want to pay you less, I can’t require you to pay back the part I wish I didn’t pay you.

(However, if I told you I was going to pay you $10/hour and accidentally paid you $12/hour, that’s a payroll error and I can collect the difference.)

The key thing here is that they promised him a certain rate of pay. He did the work on that understanding. They cannot go back and renege on it after the work has already been done. Maybe he would never have agreed to do the work at that rate — who knows. In any case, nope, can’t do it.

So… how should your boyfriend handle this?

Well, he could go straight to a lawyer or file a wage complaint with your state labor board. And that might indeed work … but it would also probably sour the relationship with the employer in all sorts of ways. If he plans to leave his job soon anyway, that might be fine with him.

But if he’d like to stay and remain on good terms, I’d start with a softer approach, one that gives them the benefit of the doubt that they just haven’t fully thought this through yet (and that they don’t realize what the law is). He should talk to his manager and say, “I’m disappointed that my pay rate is changing, although I understand that you’ve realized that it’s outside the range for this position. However, I’ve made decisions based on this pay rate, including moving into an apartment that I otherwise couldn’t have afforded. Since I’ve been doing an excellent job and have made plans based on what I understood in good faith to be our new pay agreement, I’m hoping we can keep it where it is.”

(I don’t normally advocate mentioning life circumstances like rent when talking about pay, since they’re usually irrelevant. But in this case, it’s worth pointing out to the company that he made major decisions based on their word. You can’t push that too far, because ultimately everyone is responsible for managing their own finances and accounting for the fact that their jobs aren’t permanently guaranteed, but I think it’s reasonable to mention in this context and could end up being helpful.)

From there, see what happens. If they don’t budge and also make moves to deduct the “extra money” from his paycheck retroactively, then he should say, “It’s my understanding that we can’t deduct pay retroactively like that. I understand that the pay will be different going forward, but I don’t think we’re allowed to make retroactive deductions.”

Note the use of “we” there. That’s key, because that’s positioning your boyfriend on the same side as the company. Yes, the subtext might be “You can’t do this,” but it’s much, much less adversarial language.

At that point, if it still looks like they’re going to make the retroactive deductions, he can come back with more to-the-point wording: “I looked into this, and it’s actually prohibited by law to do that.” And then, if they’re still proceeding, he can decide if he wants to go the legal route. But he has a much better chance of solving this and keeping good relations with them if he tries the approach above first.

Good luck.

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{ 103 comments }

{ 103 comments… read them below }

  1. Mena*

    Years back a colleague of mine was mistakenly over-paid for 6 months. And yes, she had to pay it back. I can only wonder if she didn’t know the whole time … you take your annual salary and divide it by 26 and look at the gross number. She didn’t look at the gross on her pay stub and see that it was wrong??

      1. Ruffingit*

        If it was a small amount then I can see not knowing. Some people don’t pay attention to pay stubs that closely and if it was direct deposited, it’s even worse because they sometimes just see the money is there and don’t closely examine it. I’m not saying this is a good thing, just that I can see how it could happen.

        2. tesyaa*

          If it was 20% and she didn’t say anything, she was probably hoping either the employer wouldn’t notice, or that the good-luck fairy dropped a present in her lap. She should have said something.

          1. Jake*

            I have direct deposit, and I never look at my pay check. My paycheck is constantly changing due to the amount of overtime I work, so if I were over-paid, I’d never know it. To assume she was being dishonest seems unfair to me.

            That being said, if they found out I was overpaid, they could easily deduct it from my next paycheck, and I wouldn’t care because I make sure my finances are in such a situation that if I lose my job (let alone get a short check) I’ll be fine.

            1. Sourire*

              I can see missing this for a small amount, by my check being consistently 20% higher than it should be – yeah, that for sure I would notice (and I also work copious amounts of overtime and use direct deposit).

              1. Jake*

                I’d notice eventually, but I wouldn’t be surprised if it took me several months in a row. The only way I’d notice is being able to put more towards my student loan payments than normal. The first couple months I would just attribute it to my bill cycles being slightly different/ more overtime. The third month I’d probably be suspicious, the fourth I’d take a serious look into it.

                Like I said before though, I’d have no problem paying it back, and I would report it right away.

                4. fposte*

                  I kind of use vagueness in this one area to hide a bit of leeway from myself. I don’t put salary income in my budget app, just reimbursements; the budget is the budget because it’s the budget, dammit, not because of what I’m making.

                5. ThursdaysGeek*

                  I’d love to discover the joys of tracking my money, but who has time? Ok, obviously some do, but I’m already swimming as hard as I can, and can’t add more to my schedule. (And TV? Really, people have time to watch it?!)

                6. ArtsNerd*

                  ThursdaysGeek – I’ve been very happy with Mint.com. You have to give them your bank login info, but they have bank-level security themselves. It pulls the info from your accounts automatically so you don’t have to do much more than log in and look at the pretty graphs of where your money is coming from and where it all went. It’s addictive.

                7. Editor*

                  When I said maybe I should adopt a spreadsheet (because my late husband used one), my accountant looked at me and said, “”Why?” She said my finances looked simple enough that keeping a tidy checkbook would be sufficient. Since I don’t like doing all those entries on a keyboard, I skipped the spreadsheet. I let her do the taxes, which has worked out well.

                8. Ask a Manager* Post author

                  Depends on what you want to do! I use mine to track various large categories of expenses and (since I consult) income, and to make projections to see what I’ll have in savings, investments, etc. by the end of the year. Very satisfying.

                9. Poe*

                  I just started doing this to help me keep track of income & expenses while living and working overseas, I use an app called “Money Owl” and it is brilliant! I just do it on my phone and take a photo of the receipt. It is helping me cope with only being paid once per month (in the first month I ran out of money before month) and also helping me keep tabs on the money I want to have for things like travelling around Europe on my holidays and going to London and plays and trying out polo (yup, the kind on horses).

                10. Woodward*

                  @ThursdaysGeek – “I’d love to discover the joys of tracking my money, but who has time? Ok, obviously some do, but I’m already swimming as hard as I can, and can’t add more to my schedule. (And TV? Really, people have time to watch it?!)”

                  I seriously thought you meant swimming for real. As if you are training for the Olympics or something. My first thought, “I can see why they don’t have time to watch their money or TV…”

                11. Julie*

                  I keep track of our expenses in a spreadsheet because I have to make sure there’s enough money in the account before I set up a payment to go out, and it’s easier to add it up in Excel than on a calculator. But after reading these comments, I realized that it would be a very good idea to track my regular income and my side job income. Regular income – to be sure it’s correct. I also have direct deposit and an electronic (online) pay stub, and I don’t even get an email telling me it’s available for me to download. I need to remember to do it every pay period. Anyway… the other thing that the comments reminded me of is that I also tutor on the side, and I’m paid as a 1099 employee for that, so I need to keep track of the taxes I will owe (since none are taken out).

    2. Anonymous*

      But they weren’t overpaid by mistake, he was given a raise and now they are taking that raise back. They can’t take back past paychecks, only moving forward can they reduce his pay rate.

    3. Anonymous*

      If you’re salaried, accidental over or under payments probably only happen when they tried to make another change (and botched it). So I think it would be easy for someone to assume their new insurance plan (for example) is actually that much cheaper.

      1. sunny-dee*

        I got a raise once, what should have been a little more than $100 a month, but my paycheck only went up about $5 because of the change in taxes. {shrug} Honestly, money is just weird sometimes, and I can see missing even 20%. If it’s, say, $200 per pay period after taxes, you may not notice because of difference in insurance, 401(k) contributions, taxes, whatever. It could even be a difference in pay cycles — I get paid on the 1st and 15th, but my husband gets paid every 2 weeks, so every 6 months he celebrates his “third paycheck.”

    4. Anon*

      We had an employee that was overpaid by $6,000 in one pay period. Our payroll person made a mistake and entered the number of hours worked into the rate of pay spot in our payroll software. The person who was overpaid never said anything, and she definitely noticed. She was a part-timer, and earned less than $500 per pay period. It wasn’t caught until I ran a salary report of that fund a few months later. She had to pay it back, and it ruined her reputation in our office. However, she is still working here for some reason.

    5. Rose*

      If it was her first job, or if she has been contracting or out of the work force for a bit, I can totally see not noticing as much as 20%. I graduated 2 years ago and was SHOCKED at how small my pay check was.

      It’s not like I can just divide my salary by 26. Health insurance, social security, dental, vision, union fees that I don’t have a choice to pay or not, my bus pass is paid for pretax monthly, plus super high state taxes.

      Also, a lot of people have direct deposit and are very careless with their money. She might have hardly looked at what was going in and out and just thought “hey! I have money!” each month.

    6. Vicki*

      Plenty of people never look at the gross on the pay stub. Especially if they money is direct-deposited into their bank account.

  2. Ruffingit*

    Wow, that is just so incredibly screwed up. What’s sad here though is that there are people out there who probably have been screwed like this, they just didn’t know it wasn’t OK to do this. Kudos to the OP for checking on this and I hope the boyfriend is able to get this dealt with quickly.

  3. Chriama*

    I’m also an advocate for not assuming malice where incompetence would explain things. However, I’d expect to make point #1 & 2 in the same conversation. In other words, he asks them to reconsider lowering his pay (giving as justification the fact that he took on more work and made life decisions because they promised him that extra compensation), they say no, he says fine but “we” can’t actually do that retroactively because it’s illegal. I’d only start to push hard if they seemed inclined to do the retroactive deductions after hearing the ‘illegal’ part.

    1. for sure*

      At least from the employee end it is. And I would suspect that the company is not TOO pleased with him if they are looking for ways to cut his check. Any which way, he needs to start shopping for a job.

      1. thenoiseinspace*

        Well, not necessarily. This to me could very easily have been the manager’s mistake. Imagine being that manager and realizing that you’ve just misread/misunderstood something and given someone a raise you weren’t supposed to give. Now you’re panicking and trying to fix it by putting everything back again and hoping you don’t lose your job. It might simply be that he assumed the increased job duties would surely have put the employee into the next pay bracket, and was shocked to find out they didn’t. It’s not necessarily a reflection on the employee.

          1. thenoiseinspace*

            As the employee, absolutely, I’d be incredibly frustrated. I’m just saying that the change in pay isn’t necessarily indicative that the company isn’t pleased with him.

            I also would take issue with “looking for ways to cut his check.” That’s not what it sounds like to me – it sounds like it was a mistake giving him the raise and now they’re trying to correct that. It’s not always the big bad evil corporation looking for ways to take advantage of its employees.

  5. Anon21*

    Hmm… does the legality depend at all how the company structures it? LW says “This means that he will personally have to pay all the extra money back, by them taking it out of his paycheck.” That suggests to me that they are planning to do this in a forward-looking way, by deducting from his future compensation (otherwise, presumably LW would have talked about her boyfriend being asked to cut the company a check). So what if they structure it as a short-term severe paycut, until they consider the “extra” to have been paid back, followed by a raise to what they consider to be the appropriate permanent rate? Just something to think about before making any legal claims.

    1. for sure*

      Sure, they could cut his wages to minimum wage if they wanted to. And he could decide that he did not want to work for minimum wage and they would still be out of the money. The point is: you cannot change a persons agreed upon wage retroactively! I can not hire you for $10/ hr to make chocolate teapots and then after you make them for 6 months tell you that you do not do a very good job so I am only going to pay you $8/hr and that you now owe me $2080 which I have overpaid you so I am going to take your next 6 and a half weeks pay to make up for it.

            1. thenoiseinspace*

              Yeah. That’s why (as I’m sure you’ve seen) one Wal-mart is having a food drive for its own employees, and one McDonalds apparently officially suggested that its employees sell their Christmas presents to pay bills. It’s a mess. :/

                2. Audiophile*

                  If I read that correctly, those suggestions were not made in the same year. Not that that makes it any better.
                  This year they suggested employees sell their gifts, a previous year they suggested cutting up food into smaller pieces. Both suggestions make them look GREAT obviously.

            2. TL*

              In a few parts of the US, that’s not such a bad salary.

              Anyways, where I grew up, minimum wage could get you by and $10/hr was enough to live, no luxurious, but beyond just scraping by, on because it’s an extremely cheap part of the USA- vs, say NYC or Seattle, where it’s definitely not enough. Canada’s a lot more expensive than a lot of the US, I think.

              1. Canuck*

                Yes, cost of living can be higher in Canada, but as usual depends on the particular area you live in. Vancouver, for example, is one of the most expensive places in the world to live – up there with Sydney, Hong Kong, and London.

                Minimum wage in British Columbia is $10.25/hr; at this rate, it is next to impossible to live in the city on minimum wage, unless you have roommates/partner income.

            3. Windchime*

              Minimum wage in Washington is $9.19, which is still not enough for anyone to get by on. But it’s a heck of a sight better than $7.25. That’s a disgrace.

          2. Zillah*

            It’s worth pointing out, though, that in most cases it’s not that much higher. For some states, it’s $.25 more an hour than federal minimum wage, if that.

            Only California, Connecticut, Washington DC, Illinois, Massachusetts, Oregon, Vermont, and Washington have minimum wage set at or above $8. (Nevada does as well, but only if your employer doesn’t include health benefits.) It’s worth noting that California, Connecticut, Washington DC, Massachusetts, and Vermont are also some of the most expensive states in the country to live in, and Oregon isn’t exactly cheap, either.

            *sigh*

            1. Heather*

              And NJ just passed a ballot question raising it to $8.25 – not that that’s in any way livable, at least in North Jersey, but at least it’s a start and a big rebuke to Governor “I’m a Moderate, Except Not Really” Christie, who vetoed the increase when the legislature passed it.

    2. Elysian*

      This was my read. They couldn’t just withdraw $xx in sum, but could say, “we paid you $12 an hour for three months when we wish we had paid you $10. To make up for it we’ll pay you $8 for the next three months and then return you to $10.” I think that’s legal, but makes the employer a total a hole.

          1. Naomi*

            No, because the employee doesn’t have to agree to work for $8/hour–he can just quit and keep the money he already earned.

      3. for sure*

        And he can say “nope, I do not agree to this pay term” and in some states would be able to collect unemployment. In CA, for example, a “substantial” cut in pay (as defined as more than 20%) would be considered “good cause” and you would be able to collect. So basically, in the example you gave, they cut it 33% and he would have grounds for unemployment.

        1. Elysian*

          Agreed – it’s their prerogative to change it (as long as the new wage is above the minimum in the jurisdiction) and it’s his prerogative to leave without repaying a dime. And he should leave, I think. Run far far away to a better job, if at all possible.

      4. Anonymous*

        That is so horrible, but its true. As long as it is above minimum, they can do whatever they want. OP must get their new pay rate in writing so when he/she goes to complain that they are retroactively taking back the money, and show that $10 is the pay rate now, vs. $8 to recoup that “lost” money.

  6. Anonymous*

    Major side eye to that company. I agree with Mike C. on this one – I don’t know how the op’s bf could un-sour that relationship after something like that. I’d file against them and look for a new job like crazy in the meantime.

  7. The Clerk*

    Alison, if the employee makes a wage claim, is he protected from retaliation for a reasonable amount of time (so he can look elsewhere), or could they just fire him the next day?

    1. fposte*

      The problem isn’t the duration, it’s that nobody polices retaliation until after it happens, and any intervention isn’t going to be timely enough to do much for him.

  8. MR*

    Yeah, it’s kinda hard to see the company making an honest mistake here, especially because they are trying to get money back after the fact. If it was a mistake, they could have just owned it, let the boyfriend keep the money, but change things going forward.

    If the company is willing to jerk around the employee on something like this, what else is the company willing to do?

  9. Ann Furthermore*

    Well this really stinks. It does sound like the company is being pretty petty about this. Maybe one approach would be for the boyfriend to ask to keep the pay increase, but volunteer to sit out during the next round of raises.

    But of course he should make it clear (and get it in writing) that this would be for one cycle only, so the employer could not use this as an excuse to pass him over for a raise for the next 4 years (or whatever).

  10. A Reader*

    I’d deal with this in the way AAM suggest. I’d also go to glass door and make sure this stuff was public if it’s not addressed appropriately and legally. This is not ok and I’d hope anybody who applied to work here knew the kinds of things they tried to pull (again, if they don’t handle this appropriately and legally!). I’d also make sure my account was anonymous (maybe that’s obvious enough).

  11. Nonprofit Office Manager*

    I know this isn’t a personal financial blog, but is anyone else concerned that $1.50/hr makes or breaks the affordability of OP’s apartment? I truly hope the boyfriend is able to keep his current wage, but either way, perhaps this is a good example of the importance of (when possible) not living so close to the financial edge?

    2. Stephanie*

      I think Alison was just using the apartment as a hypothetical.

      When I lived in DC, I knew a fair amount of people paying disproportionate amounts of income toward rent. Affordable and safe housing could be pretty hard to find (and usually the affordable stuff was offset by expensive commutes) and entry-level salaries could be pretty low. So I had friends who accepted it was normal to pay 40%+ of income toward housing. So for them, a pay decrease could have a pretty dramatic effect.

    3. Anonymous*

      I did the math (because MATH!), and $1.50/hr works out to an extra $260/mo before taxes. For me personally, that’s not enough of a difference to make nay lifestyle changes like moving. I’d pay down debt and save more. But I acknowledge that my fiscally conservative practices are not normal. I once got a $3/hr raise, and redirected part of my paycheck so that I never saw that money go into my checking account. It built up a nice emergency fund pretty quickly.

    4. Maeve*

      It really depends on how much money you have in the first place and the cost of housing. My share of the rent ($502.50 per month) is over half my income but cheaper apartments are hard to find in my area. If my pay were decreased by $1.50 an hour I would be screwed.

    5. Zillah*

      A little? But at the same time, that probably ends up being more than $200 extra a month even after taxes, and it doesn’t seem so outrageous to me that they’d choose to move after he got a raise. Even an apartment that was an extra $50 or $100 more could be a stretch without that extra income but feasible within it. I think it really depends on the situation.

      1. Anonymous*

        they might have needed to move as the OP states she is having a baby. perhaps their last place was too small/not suitable

        1. Mints*

          Yeah plus maybe they’ll have enough for bills etc with their pre-raise wages, but the extra couple hundred was the entire savings / emergency fund allotment.
          Also if they have a month to month lease, plus the almost baby, plus a well timed raise, moving seems doesn’t seem unreasonable

  12. Anonymous*

    I’m not disagreeing that this is illegal but, I can’t find anything that says changing an employees pay retroactively is illegal. Would someone mind posting a link to where this law is?

    1. Ask a Manager* Post author

      It’s a principle of implied contract law — the same thing that requires your employee to pay you anything (well, requires them to pay you anything beyond minimum wage).

      There’s a lot online saying it’s part of the FLSA, but I don’t actually think it is. (But I had employment attorney Bryan Cavanaugh verify for me that my response was accurate.)

    2. Elysian*

      AAM beat me to answering this fun question!
      Even if you don’t have a written contract, at-will employment can be viewed as like a day-to-day unwritten contract. You employer extends you the offer of a certain amount of money, and you accept by coming in and doing work. Next day, same thing. So they employer can change the offer “I know we paid you $12 yesterday, but the offer for tomorrow is going to be $8.” and you can refuse to accept (by not coming to work).

      The ‘contract’ just doesn’t make sense retroactively. If you worked yesterday and I paid you $100, the offer for tomorrow can’t be “You pay me back $50 of what I gave you yesterday.” Employee and employer already made a deal. The slate is wiped clean and now there’s going to be a new ‘contract.’

      There are more sophisticated ways to look at things under the law, but that’s the gist. It’s based on a contact idea, even if a contract isn’t written down.

  13. COT*

    $1.50 an hour may not sound like a lot, but it’s $260 a month (gross). That’s a lot of money to many people, and losing it can be a hit. A couple with a baby on the way may need that larger apartment and might not have the luxury of living a little further away from the edge.

  14. Gene*

    Ah, memories!

    I was in the Navy in the 70s, on WESPAC on what was then the largest warship in the world. We got paid in cash on the 1st and the 15th. I changed an allotment that was being sent home and noticed that the next pay was higher than it should have been, so I went and talked with the disbursing clerk assignned to the Reactor Department. He looked at it, said that the pay I had gotten was correct, and “showed” me how it was right.

    Cut to a month or so at sea to be followed by a port call in Singapore a month later and all the sudden I’m getting something like $5 in my pay. Yep, FIVE FRACKING DOLLARS! I head straight to Disbursing to talk with (yell at) the clerk and his response was, “I found out we were overpaying you, but decided to let you keep getting the extra money while were in port in the Philippines and take it out while we are at sea where you don’t need money.” So, I was going to be going to Singapore with less than $20 in my pocket – yes, I was young and left port with only a few dollars. While I was “talking” with him, his chief heard the disturbance and came out to see what was going on. On explanation he counselled the clerk that he should have asked me what I wanted done and loaned me money from his own pocket so I would have spending money in Singapore.

  16. Editor*

    I can think of reasons this might have happened, but I wish the boyfriend’s employer would just suck it up. I thought the detail about working two locations was interesting — it sounds like his commute might have been affected or his hours got more demanding. (On the personal side, I can understand moving before the baby arrives when a raise makes it possible, but going forward, the couple should try to be more conservative about budgeting.)

    Yes, follow-up please. And best wishes for the baby and to the new parents.

      1. Zahra*

        You don’t *have* to move because of a baby. All a baby needs are a place to sleep, food, clothes and their parents (oh, and a safe child restraint (car seat), used properly). That’s about it for the first year. If you cosleep, you don’t need a crib. If you do have a living room, you can put the crib there (but I admit it’s less than ideal).

        I have a 2 year old, and his clothes don’t take up much space: barely a drawer. I have about 8 days’ worth of clothes for him and wash weekly. You don’t really need more as they grow up so quickly that more clothes would be barely have any wear and tear.

  17. Elkay*

    If he doesn’t have the pay rise in writing then surely they would be able to say “We’ve been overpaying you and we want that money back”? I’m not saying it’s right, it’d be a crappy thing to do but would the boyfriend have any comeback legally?

    1. Elysian*

      Being in writing (almost) never makes the difference between legal/not legal. It just makes something easier to prove. So it wouldn’t matter if the arrangement was in writing or not.

  18. Brett*

    I am wondering what the “mistake” was here. Did the company violate internal policies, or did they realize they could hire someone else for less and decided to try to claw back to force the OP’s boyfriend to quit?

    Or the worst case scenario, found out the LW is pregnant and the boyfriend cannot afford to quit, so they are taking advantage of that situation. Just the whole idea that a raise was a “mistake” raises red flags to me.

  19. Paralegal/Legal Secretary*

    $52,250 annually plus profit sharing pool (approx. $7,000 last year), plus OT resulted in $60,000 annual income combined from this job.
    7 years experience.
    San Diego.
    Small law firm (10 attorneys).
    Male.

  20. Michelle*

    My employeer is trying to do the same thing. I was given a raise and then it was reduced due to budget reasons. Now they are asking for retroactive pay from the start of the raise. It’s nothing huge but I feel like I’m being punished by paying back a raise they agreed to and then continuing to work at a reduced rate. I’ve read the board and discussions points and am hoping for a sound law that I can come back with to HR to begin a discussion. Any advice?

  21. kci*

    Please assist, my company verbally said they maid a mistake on increasing salary for some staff and when those who didnt get the pay rise complained, they reasoned they can’t make the same mistake. so now there is a conflict between employer and other employees, what approach can this employees take?

  22. timothy*

    Hello I was curious to see if this is legal. I work for a cable company . They pay us a piece rate but make it look like they pay us a hourly rate . The hourly rate changes each week depending on the amount of work we do . We are only paid $ 10.00 a hour for overtime no mater what our hourly rate is . I know the law says it has to be time and a half . Is this company aloud to do this legally ? We are all w2 employees .

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