Overpaid employee, contract states correct hourly rate, but incorrect annual salary

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Wondering if I could get some very speedy advice before a committee meeting!

It's recently come to light that all staff employed by a pre-school have been overpaid because their holiday entitlement was calculated incorrectly.

In this pre-school, the staff are paid their holiday pay as part of their monthly salary, as obviously you can't take holiday during term time.

All staff are paid an hourly rate with set hours per week, and contracted to work for 38 weeks per year.

The contracts state the correct hourly rate, weeks per year and hours. However, it INCORRECTLY states an annual salary (which has been divided by 12 and paid monthly).

I am aware that by law, in usual circumstances, an over-payment of salary can be re-claimed by the employer. However, as the incorrect amount is stated in the employment contract and signed by both parties, I am not sure of the legal position on this and how it gets corrected.

Can anyone offer some advice please? Thanks in advance.

just to add in case it's relevant:

It does not mention holiday pay in relation to either the hourly rate or the annual salary, however it does state in a separate section that "you are entitled to statutory annual paid holiday"..."your paid holiday entitlement will be in accordance with the regulations established in the Working Time Directive 1998".

The exact wording is "your rate of pay is £X per hour and your salary will be £Y, you will be paid by bank transfer. you will be paid monthly in arrears. Salaries are reviews annually" (where X is correct, but Y is wrong)

Elsewhere it states "you are employed to work a total of 38 weeks throughout this period" and elsewhere "you are required to work Z hours per week (for a total of 38 weeks through the period detailed in clause 3)". Z hours is correct.

I think if it's been said they're getting Y a year and that's what they've been getting they can't be asked to repay it. And if I was an employee and they tried to downgrade my annual salary to the correct amount I would take union advice to see if I could fight it.

How much difference is there? Does Y include the holiday allowance? For reference, statutroy holidays accrue at a rate of 12.07%. So annual salary should be (hourly rate) X 1.1207 x (hours per week) x 38 weeks. If you are miles out it will need correcting, but if it's very minor, you could treat it as a pay rise?

And having run a preschool on a minuscule budget, there may be no option to pay the higher amount without putting fees up. And if the preschool can sustain higher fees without losing children. It's not as simple as just saying "you have to pay it". In addition, if you are only offering hours funded by the 15 / 30 hour funding there simply won't be any more money to pay it.

The difference is approx £1.1k per year across all the staff and seeing as we're forecast to make a £4k loss this year after a £12k loss last year, saving every penny is really important so treating as a pay rise isn't really an option.

Socks - your calculation is really helpful, but is giving me a different answer to the HMRC calculator that I've been using to try to work out the correct figure. If I can use some made up figures, perhaps you could help me work out why?

Employee A is paid £11/h for 7 hours a week over 39 weeks, thus a total of 273 hours per year. All bank holidays are taken off as the pre-school is closed (don't know if that's relevant). No other holiday is allowed during term-time.

Using this calculator for annualised hours: www.gov.uk/calculate-your-holiday-entitlement, I'm being given an annual holiday allowance of 32hrs and 56mins, so rounding up to 33 hours.

Salary is calculated at 306hrs per year at £11 an hour. Total = £3,366.

Using your calculation, I get

11 x 1.1207 x 7 x 38 = £3279.17

Difference = £86.83 less.

Not sure why this is? Any insight would be great, thank you

Sorry I'm a fool ignore me. I realise I've multiplied one by 39 weeks and one by 38 weeks. Just done it again and they're virtually the same (54p less but that's because I've rounded up the annual entitlement in my first example to 33 hours rather than 32. something I expect).

Right, so good to have it confirmed that our new calculations are correct, thank you.

We're investigating the steps needed to change the contract so we can correct the mistake going forward but will not attempt to reclaim the money from the staff. Thank you for your help.