Q: I recently bought a small catering business from a family friend for a nominal fee – he wanted to go and do something else, but didn’t like the idea of letting good workers go. It barely made any money, and I think I’ve found a reason why. Going through the books, he’s been paying two members of staff €18 an hour net instead of €18 an hour gross. He’s effectively been paying their taxes for them, at an extra cost of €120 per week!
They’re good employees, as far as I can tell, and have been with him for six and nine years respectively. The sums involved, then, are pretty significant, and it’s an extremely sensitive situation. The only person I’ve raised this with so far is the previous owner. He said to deal with it however I want, but that it was his mistake, and he’d rather not see these employees get “hammered” as a result. How should I proceed?
A: This is a right mess. The first thing you need to do is look at the contracts of the employees in question. If they have been drafted competently at all, they should include a clause governing the overpayment of wages – effectively, something to say that they will be deducted from their salaries once discovered.
You are legally entitled to deduct money from an employee’s wages to recover an overpayment. However, you’re right that this is sensitive: they’re not raking it in but the sums are still significant. That’s even before considering that this is the previous business owner’s fault. If you call them in and demand a month’s worth of free work to make up for the company’s mistake, they’ll tell you where to go – probably in graphic terms. You’ll lose two employees, and have a very hard time chasing this money.
My advice would be to meet with them individually and explain the mistake. You should have their contract, and samples of their payslips, to prove you’re not pulling a fast one. Give them time to digest the information, and to verify that what you’re saying is true if they need.
Firstly, they need to start paying their own tax and go onto €18 an hour gross. If they’re used to getting €18 an hour net, that’s going to be another bitter enough pill to swallow. As for the overpaid wages, the most sensible approach is to work out a payment plan with them, even if it means deducting small amounts from their wages for a year or more. In reality, this means you may have to write off some cash if they leave early, or deduct it from accumulated holiday pay. However, you’re better off looking at any repaid wages effectively as a bonus, outside the business’ normal profit and loss under your stewardship. That way, while this is an awkward and sensitive situation to sort out, you’re going to be getting a little extra cash in the bank over the course of your first year running the company.