Our employee was overpaid as a result of an error in payroll submissions. The amount of overpayment was not insignificant and the overpayment continued for several months (the employee apparently did not notice) before the mistake was found. When the Congregational board president approached the employee about the error the employee balked at repaying, claimed it would be a hardship to return the money and did not feel he was obligated to do so. Ultimately, after demands and threats, the employee did agree to repay the overpayment, but only after negotiating a long repayment plan that spans more than a year (and without any interest). Do Jewish law or Jewish values require that this money be returned? If so, was the employee in violation of either Halachah or Jewish values by refusing to repay the money? Should it have been returned without delay (as soon as the error was pointed out) and without stipulation? Was the Congregation in any way in error in requesting repayment? What is the proper behavior according to Jewish values and ethics?
There seems to be (at least) two different valences to this question: legal and interpersonal. Let’s tackle the legal first. Unintended salary overpayments must be repaid as a matter of Jewish law. I am under the impression that American civil law requires the same, but all matters of civil law should be discussed with an employment attorney. For a brief overview of the civil law, see http://www.ehow.com/about_5557943_labor-laws-concerning-salary-overpayments.html. While accounting mistakes are common, it is not always easy for either employer or employee to spot them. In this age of multiple withholdings, it is very difficult for employees to understand fully their monthly pay stubs or know what their true take-home pay should be. It is recommended that an organization sit down yearly with its employees to review the financial facts of payroll. Employers may also consider establishing a "Salary Overpayment and Correction Policy" as part of an employee handbook. Payroll errors potentially can be frustrating, financially hurtful and time consuming for both employer and employee, and thus grievances could cut both ways. For example, a salary overpayment may create for an employee a greater tax liability, i.e., put the employee into a higher tax bracket that effects the employee’s entire salary and not just the overpayment, which would then need to be remedied through the filing of an emended return and claiming a tax credit. In such a case, we may further inquire as to who is responsible to pay for the required additional personal accounting work?
In terms of Halakhah (Jewish law), Rabbi Joseph Karo’s Code of Jewish Law, Shulkhan Arukh, Choshen Mishpat 232:2 rules: “One who received monies from another whether as part of a commercial transaction, loan, or loan repayment, and an overpayment is discovered, even if the second party has not (yet) made a claim, the recipient is obligated to return the extra monies since they were the result of error…” To knowingly not return the overpayment would be tantamount to theft. The overpayment would arguably be halakhically considered as a loan, rather than as an advance payment of future salary, especially if the employment understanding/contract stipulates a yearly salary made in equal, regular payments. Rabbi Joseph Karo does not mention the term of repayment. On the one hand, a baseline term for monies owed in Jewish law, especially standard loans, is 30 days (TB Makkot 3b). On the other hand, given that the sum in question was “not insignificant” and instant or short-term repayment could be difficult for the employee to manage in terms of cash flow, Jewish ethics would encourage the establishment of a fair and reasonable repayment schedule. Jewish law may possibly demand this, as well. Regardless, Jewish law would very likely require that any payment term not be subject to interest.
In terms of the interpersonal, professional relationship between the synagogue and its employee, the question as formulated seems to imply that this unfortunate occurrence seems to have soured the relationship, assuming it had not already been awry beforehand. It is not clear whether the synagogue leadership disbelieves the employee’s attestation of not having realized there was an ongoing overpayment. The employee showed lack of regard for the community monies of the synagogue by articulating that s/he did not feel obligated to return monies that s/he did not earn, but received in error. The synagogue leadership as employer had to make demands and threats. Given that there has been a breakdown in trust, this may negatively affect the employer’s ability to rely on the judgment and presumption of good faith of the employee. The employee on the other hand may feel that while s/he initially unwittingly benefited from a payroll mistake, s/he may have found the synagogue callous to the difficulties of repayment. It was not shared whether the employee in question was a member of the clergy (rabbi or cantor), an educator, or a member of the synagogue’s administrative or facility support staff. If the relationship had been valued by both parties before this unfortunate episode, it would seemingly behoove all involved to work hard to surmount the negative feelings engendered and find a way back to work together to serve the synagogue community with faithfulness.
I thank my friend and colleague Rabbi Aryeh Klapper and the guests at my Shabbos table on Parshat Korach 5773 for discussing this case with me.
Honesty demands returned property that is not lawfully one’s own. And further, keeping money to which one is not entitled is tantamount to stealing. The Hafetz Hayim – Rabbi Yisrael Meir HaKohen Kagan – went so far as to rule that even an uncanceled postage stamp cannot be re-used since it cheats the government out of money to which it is entitled. An employer may be exceptionally kind and arrange an easy repayment schedule. But absent such a benevolence, the employee must return every cent the employer overpaid him or her.
I begin by noticing the obvious: the employee's legal responsibility in this matter is determined by the labor and tax laws of the location in which this action took place. Jewish law recognizes this fact, under the principle dina d'malchuta dina (the law of the state is valid and binding upon us). It is therefore essential that the employee and Congregation each consult with an attorney as their legal obligations.
Yet, Jewish law does require the return of payment that was not due. I think this is similar to a discussion in the Talmud (Bava Metzia) -
The servant's liability for pecuniary loss caused to his master is equivalent to that of a bailee for reward, whether in respect of theft and loss or any other kind of damage (BM 80b, 82b). To state it in a simpler matter – the employee was causing the Congregation a loss for it was not part of any agreement. Since the Congregation made the error, it is also required to not cause any hardship to the employee in its repayment. Furthermore, there is no interest charged as it was an error and a simple repayment makes the matter “whole.” Returning to Bava Metzia, the sages of the Talmud were at pains to modulate the severity of the servant's liability, and with reference to damage negligently caused.
There is a concern that the repayment is a hardship and thus, more time is permitted. However, we also acknowledge that the employee probably paid additional taxes on this income being returned and thus should consult a tax advisor on recovering these additional tax payments.
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