Managing Wage Overpayments: Putting SB 968 and ORS 652.610 Into Practice

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By Neil Taylor

Introduction and Practical Guidance on SB 968 (2025 Session)

As we move into 2026 and begin implementing new legislative requirements, it’s worth taking a fresh look at the payroll practices that support your workforce and protect your organization. Oregon enacted SB 968 (now codified at ORS 652.625), effective January 1, 2026, which establishes a clear statutory process for public employers to recover erroneous wage overpayments from public employees. Previously, BOLI treated wage deductions (even those voluntarily agreed to by the employee) to recoup overpayment of wages as an unlawful deduction.  This new law changes that and allows public employers a much easier method to recoup overpayments.

1.   SB 968 Now Governs Overpayment Recovery for Public Employers

SB 968 applies to public employers and public employees as defined in ORS 243.650. It repeals ORS 292.063 (wage deductions related to state employees) and replaces it with a detailed, mandatory process for recovering erroneous wage overpayments.

Under the legislation, a public employer may deduct an overpayment from a public employee’s wages only if all of the following requirements are met:

A.  The overpayment must be recent.

The overpayment must have occurred within the 364‑day period immediately before the employer provides the required written statements.

B.   The employer must provide advance written notice.

The employer must provide the required written statements at least 10 calendar days before making any deduction.

C.   The employer must provide three specific written statements.

  1. Itemization of the overpayment: A written statement itemizing the overpayment amount and the purpose of each deduction.
  2. Deduction cap: A written statement explaining that no deduction may exceed five percent of the employee’s gross pay per pay period, unless the employee requests and specifies a higher amount.
  3. Final paycheck recoupment: A written statement informing the employee that, if they separate from employment, the employer may recoup the remaining balance from the final paycheck.

D.  Collective bargaining agreements still control where applicable. 

For employees covered by a CBA, overpayment recovery is likely governed by the terms of that agreement. Consult your labor attorney if your CBA includes a repayment allowance greater than SB 968’s five percent cap.

2.   ORS 652.610 Continues to Govern All Other Wage Deductions

ORS 652.610(3) applies to all employers, including public employers, and prohibits withholding, deducting, or diverting any portion of an employee’s wages unless one of the following applies:

  • The deduction is required by law.
  • The employee voluntarily authorizes the deduction in writing, the deduction is for the employee’s benefit, and the deduction is recorded in the employer’s books and records.
  • The employee voluntarily authorizes a deduction for another item, so long as the employer is not the ultimate recipient and the deduction is recorded.
  • The deduction is authorized by a collective bargaining agreement.
  • The deduction is authorized under ORS 18.736.
  • The deduction is made from final wages to repay an employer loan, pursuant to a written agreement.

3.   How SB 968 and ORS 652.610 Interact

A.  If the deduction is for an overpayment → SB 968 controls.

Public employers must follow SB 968’s requirements. If they do, no employee authorization is required. Employers should also follow any relevant provisions of a CBA.

B. If the deduction is for anything else → ORS 652.610 controls.

Most deductions require written authorization, unless another statutory exception applies.

C.  If an overpayment deduction does not meet SB 968’s requirements.

The employer cannot fall back on ORS 652.610 to make a wage deduction unless authorized by a collective bargaining agreement. The employer must either seek other repayment options other than wage deductions or pursue other lawful recovery methods (e.g., civil action).

4.   Use This Change to Strengthen Communication and Internal Controls

Overpayments often stem from timing issues, late approvals, or misapplied pay codes. SB 968’s notice and documentation requirements encourage employers to slow down, communicate clearly, and ensure accuracy before deductions begin. Consider developing standard templates for overpayment notices and repayment agreements to streamline compliance.

5.   Align Your Policies and Practices Before the Effective Date

If your entity maintains its own personnel policies or payroll procedures, update them to reflect SB 968’s requirements. Ensure HR, payroll, and supervisors understand the new timelines, documentation standards, and deduction limits. For unionized employees, confirm that your practices align with the applicable collective bargaining agreement.

6.   We’re Always Here to Assist

As always, our team remains available to help review your policies, answer implementation questions, and support your transition to the new statutory framework.