What are the overpayment rules in Texas?

What are the overpayment rules in Texas?

Managing payroll is a challenging task for every business, and amidst the intricacies, errors like overpayments can occasionally occur. These mistakes might stem from various issues, such as data entry errors, miscalculations, or errors during the payment process. 

Overpayments pose a challenge, which is why Texas, like any other state, has established specific rules to address these situations, aiming to ensure fairness for both employers and employees. It’s crucial for employers to grasp these rules to navigate payroll intricacies smoothly, fostering compliance with state regulations. In this blog, we will unravel the overpayment rules in Texas, shedding light on how they contribute to resolving and preventing financial discrepancies. 

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What is Overpayment? 

Overpayment occurs when an employee receives more money or compensation than they are entitled to. This can happen due to various reasons, including data entry errors, accounting mistakes, miscalculations, documentation errors, clerical inaccuracies, changes in employment status, and more. Overpayments generally fall into two main categories:

  • Erroneous Payments: True to its name, error-based overpayments arise from mistakes or inaccuracies in payroll processing. These can occur due to factors such as incorrect data entry, miscalculations of wages, or accidental duplicate payments.
  • Voluntary Payments: Voluntary payments occur when an employer intentionally pays an employee more money than what was originally agreed upon. This can happen for various reasons, such as misunderstandings about the agreed salary or because the employer wants to offer extra incentives or rewards to the employee. 

Overpayment rules in Texas

Employer related to rules 

In Texas, employers or companies possess the legal right to reclaim overpayments made to employees. The procedures for recovering overpayments and the stipulated timeline for such recovery are delineated in state law.

a) Voluntary Deductions

When an overpayment occurs, and the employer seeks repayment from the employee, the voluntary deductions method comes into play. If the employee is unable to pay the entire amount upfront, the employer can opt for deducting the overpaid amount from the employee’s subsequent paychecks.

It’s important to note that these deductions cannot exceed 25% of the employee’s disposable earnings in any pay period. Disposable earnings are defined as the employee’s earnings after legally required deductions, such as taxes and Social Security, have been taken out. 

Before initiating deductions, the employer must issue a written demand for repayment to the employee, specifying the overpayment amount, the reason behind it, and the deadline for repayment. The employee retains the right to dispute the overpayment claim.

b) Erroneous Overpayments

When overpayments result from payroll processing errors made by the employer or company, they have a two-year window to file a lawsuit for the recovery of overpaid funds if alternative recovery methods prove unsuccessful. The two-year countdown begins from the day the overpayment was made to the employee.

c) Voluntary Overpayments

In cases where overpayments stem from voluntary actions, meaning the employer intentionally paid the employee more, possibly due to a misunderstanding, and it is not a result of payroll processing errors. In this situation, employers have a four-year window to file a lawsuit for overpayment recovery if other methods prove unsuccessful. The four-year timeframe commences from the date when the overpayment was made to the employee.

d) Legal Action

In the event that the employee fails to repay the agreed-upon overpayment within the specified timeframe or disputes the claim, refusing to repay the amount, the employer may opt to seek legal recourse by taking the matter to court for the recovery of the overpaid amount.

Employees related to rules 

In Texas, there are certain rules and regulations which provide the right to employees regarding the matter similar to employers, employees also have certain rules which provide rights regarding overpayments. 

a) Dispute Overpayments

Employees have the right to challenge an overpayment claim if they genuinely believe they are not at fault for the excess payment. This allows them to voice their perspective and provide any necessary evidence or clarification to address the dispute effectively.

b) Request a Repayment Plan

Employees facing difficulty repaying an overpayment upfront have the option to approach their employer for a reasonable repayment plan. This provides employees with a more manageable way to settle the overpaid amount over an agreed-upon period, fostering a fair resolution for both parties.

c) Seek Legal Counsel

If employees find themselves uncertain about their rights in the overpayment recoupment process or suspect any violation, they have the right to consult legal counsel. This empowers them to navigate complexities, ensuring a fair and informed resolution aligned with their rights and concerns.


Understanding and adhering to overpayment rules in Texas is paramount for both employers and employees to navigate the complexities of payroll management. Employers, armed with the legal right to reclaim overpayments, must follow specific procedures, including written demands and adherence to voluntary deduction limits. On the employee side, having the ability to dispute claims and request reasonable repayment plans ensures fairness in the resolution process. The legal recourse available to both parties further underscores the importance of clear communication and adherence to state regulations. Navigating these rules equitably fosters a harmonious relationship between employers and employees in addressing and rectifying financial discrepancies. A more thorough understanding will assist companies or employers in recovering overpayment amounts from both current and terminated employees.

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