Payroll mistakes happen — a missed pay rise, a wrong tax code applied for too long, or an accidental overpayment. This guide explains how UK employers correct payroll errors in 2026/27, including the legal rules on recovering an overpayment from an employee.
Correcting an Underpayment
If an employee has been paid too little — whether from a missed pay rise, an incorrect rate, or a processing error — the shortfall should be corrected and paid as soon as the mistake is identified, generally in the next available payroll run, along with an explanation of what went wrong and how the correction was calculated.
Persistent or serious underpayment, especially if it results in pay falling below the National Minimum or Living Wage for the relevant pay reference period, carries its own compliance risks for the employer beyond simply the individual correction.
Recovering an Overpayment
Employers are generally entitled to recover a genuine overpayment of wages from an employee, but this is subject to legal limits on deductions from wages, and the way a recovery is handled — particularly the amount and pace of deductions — needs to be reasonable and, ideally, agreed with the employee rather than imposed abruptly.
For a significant overpayment, agreeing a repayment plan over several pay periods, rather than deducting the whole amount from a single payslip, is common practice and reduces the risk of a dispute or hardship, even though the strict legal position may allow faster recovery in some circumstances.
Tax and National Insurance Corrections
Payroll corrections are usually reflected through an amended or additional Full Payment Submission (FPS) to HMRC for the relevant pay period, ensuring the employee’s year-to-date tax and National Insurance figures are accurate and that any tax code issue is addressed for future payslips.
If a wrong tax code caused an employee to overpay or underpay tax over several months, correcting the code going forward, alongside any necessary in-year adjustment, usually resolves most of the position without the employee needing to wait until the end of the tax year for a P800 reconciliation.
Frequently Asked Questions
Can my employer take back an overpayment without asking me?
Employers generally have a legal right to recover a genuine overpayment of wages, but the amount, method and pace of recovery must be reasonable, and good practice — sometimes required in specific circumstances — is to discuss and agree a repayment plan with the employee rather than deducting everything from one payslip.
How quickly should an underpayment be corrected?
As soon as possible once identified, typically in the very next payroll run, along with a clear explanation of the mistake and how much is being paid to correct it, particularly if the underpayment affected National Minimum or Living Wage compliance.
Does my employer need to notify HMRC about a payroll correction?
Yes — corrections are usually reflected in an amended or additional Full Payment Submission for the relevant period, so that your year-to-date tax and National Insurance records held by HMRC stay accurate and any tax code issue is properly addressed.
Show 7 more questionsShow fewer questions
What if I disagree with the amount my employer says was overpaid?
Raise the discrepancy with your employer or payroll team promptly and ask for a clear breakdown of the calculation — if it cannot be resolved informally, this can become a grievance matter, and in serious cases advice from a professional or advice service may help.
Can an overpayment recovery ever be unlawful?
Yes, if the deduction is not genuinely to recover an actual overpayment, is disproportionate, or breaches specific legal protections around deductions from wages (including, for lower-paid workers, protections relating to the National Minimum Wage), the recovery method itself can be challenged.
Will a payroll correction affect my P60 or P45?
It can — if a correction changes your year-to-date pay, tax or National Insurance figures, this should be reflected in later payslips and in your P60 or P45, so it is worth checking these documents match the corrected figures rather than an earlier, incorrect position.
Can my employer deduct an overpayment from my final pay if I leave?
Yes — an employer can generally recover an outstanding overpayment from a final payslip, including holiday pay, but the amount deducted should still reflect only the genuine overpayment, and it is worth asking for a clear breakdown before the final payment is made.
Do payroll errors need to be corrected within a set time limit?
There is no single fixed deadline for correcting a payroll error, but corrections should be made promptly once identified, and employers should be aware that HMRC and employment tribunal claims relating to unlawful deductions are themselves subject to statutory time limits.
What should I check first if my payslip looks wrong?
Compare your gross pay, tax code, National Insurance category and any deductions against your previous payslip and contract, since most payroll errors trace back to a changed tax code, a missed pay rise, an incorrect NI category or a one-off processing mistake.
Can a payroll error lead to a tax code change?
Yes — if the error involved incorrect year-to-date figures being reported, HMRC may issue a revised tax code once the correction is submitted, and this new code should be applied from the next available payroll run to prevent the same error recurring.
Disclaimer: This guide reflects UK rules as they generally apply in 2026/27. This guide is for general information only and is not professional advice. Consult a qualified adviser and refer to gov.uk for current official guidance before relying on any treatment.
