Employee Dishonesty and Overpayment of Wages

April 14, 2011

The form is BP 00 03 01 06. Our insured had an employee who was adding time to her time card and receiving additional pay for hours not worked.

I am a tad puzzled by the language under Employee Dishonesty, (2). If I read this correctly, padding a time card for extra pay is not covered, as the policy states “other” than salaries, commissions, fees, and so forth, and this would not qualify as “other” since it is extra “salary” she was obtaining.

Would you agree?

Oregon Subscriber

An argument could be made that the extra salary was not “earned in the normal course of employment”—as the employee did not work these hours, she did not earn the extra pay. However, courts have held that overpayment of  wages is still considered salary. One case expressing this view is James B. Lansing Sound, Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 801 F.2d 1560 (9th Cir. 1986). Under this view, padding the time card is not covered.