Parental leave overpayments can create payroll and legal issues for employers. Parental leave includes leave taken in connection with the birth or care of a child, including maternity leave and paternity leave.
If an employee has been overpaid during parental leave, the next steps will depend on how the payment was originally made. The three most common payment scenarios are:
- Your own employer-funded paid parental leave (under a contract, policy or enterprise agreement)
- Australian Government Parental Leave Pay (PLP) administered by Services Australia (which is sometimes paid through the employer)
- A combination of both
Regardless of the category, one key rule applies: you generally cannot deduct the overpayment from future wages unless strict legal requirements are met.
1. If the overpayment relates to employer-funded paid parental leave
Can you recover the overpayment?
Technically, yes. An overpayment is usually treated as a debt, and employers have a legal right to recover it.
However, it must be handled lawfully. You cannot just take the money back through payroll without proper authority.
Can you deduct it from future wages?
Under the Fair Work Act 2009, deductions from wages are only allowed in limited circumstances. A deduction must be:
- Authorised in writing by the employee and principally for their benefit, or
- Permitted by an award, enterprise agreement or Fair Work Commission order, or
- Required or authorised by law or a court order
You cannot deduct the overpayment from the employee’s wages on your own initiative. Instead, the appropriate course is to seek a written repayment agreement (payment plan) that clearly sets out the agreed amount and how it will be repaid.
If you are unsure how to document this properly, Prosper Law can help you put a clear and cost-effective agreement in place.
What if they refuse to agree to repay the money?
If the employee does not agree to a repayment arrangement, in most cases, the appropriate path is to recover the amount as a debt through the courts, rather than deducting wages without agreement.
Avoid “cashback scheme” risks
The Fair Work Ombudsman cautions employers against requiring employees to repay money in a way that is unreasonable or mainly for the employer’s benefit. In certain circumstances, these types of arrangements can be characterised as unlawful “cashback schemes.”
This does not prevent you from recovering a genuine overpayment. It does mean that any recovery must be approached carefully, reasonably and in accordance with the relevant legal framework, typically through a clear written agreement or, if necessary, formal legal proceedings.
2. If the overpayment relates to Australian Government Parental Leave Pay (PLP)
Parental Leave Pay (PLP) is a government entitlement administered by Services Australia under the Paid Parental Leave Act 2010.
Even though PLP is often paid through the employer’s payroll system, it is not the employer’s money. You are effectively acting as a paymaster on behalf of the Commonwealth.
Who is responsible for the overpayment?
If the overpayment relates to PLP:
- It is generally treated as a Commonwealth debt, not a private debt owed to the employer.
- Services Australia has statutory powers to raise and recover overpayments directly from the employee.
- In some cases, Services Australia may also seek recovery from the employer if the overpayment resulted from incorrect reporting or payment processing.
This is primarily a matter between the employee and Services Australia, not a standard wage overpayment scenario.
Can you deduct PLP overpayments from future wages?
No, not unless there is a clear legal basis to do so.
Since PLP is a government entitlement:
- You should not deduct the amount from the employee’s wages, this will be managed through Services Australia and the employees mygov account.
- Any recovery process should be guided by Services Australia.
- If an adjustment is required, it is usually managed through Services Australia’s reconciliation or debt recovery processes.
If you become aware of an overpayment, you must notify Services Australia promptly and seek written guidance before taking any action.
3. If the overpayment is a mix of employer-funded leave and PLP
Where both types of payments are involved:
- Separate the amounts carefully.
- Treat the employer-funded component as a potential private debt (subject to the rules under the Fair Work Act 2009 regarding deductions).
- Treat the PLP component as a matter for Services Australia under the Paid Parental Leave framework.
Do not blend the two into a single “repayment” demand without clearly identifying what portion relates to which legal regime.
Practical Risk Management Steps
If you discover an overpayment during parental leave:
- Audit the figures carefully and confirm the source of the overpayment.
- Notify the employee in writing with a clear breakdown.
- For employer-funded amounts, propose a reasonable written repayment arrangement.
- For PLP amounts, notify Services Australia and follow their direction.
- Avoid unilateral payroll deductions unless you have valid written authorisation or a court order.
Prosper Law can guide and support you through this process, ensuring your approach is both legally compliant and handled with care. Most overpayment issues can be resolved commercially and without escalation.
Contact an Australian Business Lawyer Today.
Contact us for a free consultation
