What is a Clawback?

In HR and legal terms, clawback is the practice of recovering money or other assets from an entity or employee who has already received payment. It’s often used to recoup losses from a particular situation, such as fraud or financial mismanagement.

Clawbacks can also be used to recover compensation in cases of breach of contract, violation of non-compete agreements, or other instances where an employee has received payment or benefits to which they were not entitled.

For example, an employee receives incentive-based pay like a bonus, but it’s later discovered that they did not meet the performance standards. In that case, the employer may be entitled to ask for the bonus money back – sometimes with a penalty.