My employer informed me that they paid me at an incorrect rate, and they are now threatening to deduct the overpayment from my paychecks. Furthermore, they have said that if I resign, the money "owed" will go to a collections agency. I never signed the initial erroneous contract or received an award letter, and I was not told what my pay would be. I have told them I believed I had received a raise ten months ago and left it at that. They now say it was an error.
I have not signed anything agreeing to the repayment, in fact I appealed to management in writing. They have not explained how the mistake happened. They just informed me that starting this week they will deduct the overpayment from my wages. Is this legal? Can I stop them from garnishing my wages? Can I resign without risking a bigger mess? The employer is the State of Colorado. Thank you for your help.

CO is not my state and someone who actually knows CO law will have to address that.

I can say that a "garnishment" is a type of court order and what you describe is just a deduction, not a garnishment. I can give you the federal deduction rules, but you really need the CO rules to get a good answer.
Federal deduction rules (http://www.dol.gov/esa/regs/compliance/whd/whdfs16.htm)

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Past that, you owe the money or you do not. A collection agency just means that you have a different set of people trying to get you to give them money. If you owe them money and they can prove it in a court of law, then they will get a judgment. Using a collection agency does not change that. Using a collection agency is often a sign of weakness, not a sign of strength on the employer's standpoint.

I have had Accounts Payable report to me at some pretty big companies and we never once made a payment solely because a collection agency was involved. The only meaningful threat is actually taking someone to court.

Colorado law DOES require deductions be authorized in writing. However, there is always a discussion in the payroll world whether these laws relate only to deductions from NET pay, but also reductions from GROSS pay.

If the employer made an overpayment,he can deduct it any way he wants. It is not a garnishment. Garnishments are court ordered. The employer is recouping an overpayment. That is why when you see an overpayment on your check you have to contact payroll the following day. That is a standard clause any where I ever worked.
JoeC

Joec--
I was never told how much my supplemental raise would be, and so could not have known my pay stub was wrong. they are now saying after the fact that the contracts (signed by my superiors, not be me) were entered incorrectly by HR.
That's really the issue I'm curious about.

Thanks for your help.

Don't you have a copy of the contract that specifies your salary or new salary? As far as entry into the payroll/HR system, mistakes happen.

I received a copy of the contract this week. I never received a copy or an award letter last September, when this happened. I only received a copy of the original contract back in July--this was a supplemental one that was issued in September. It was all done verbally at that point. I guess it's standard not to issue an award letter for supplemental contracts.

Here's the scenario now. When I balked at being made liable for this money (having it taken out of my salary and then going to collections when I resign), they have offered to not process the overpayment. Instead, they are awarding me my regular salary for these next twelve months, MINUS the amount I owe--so I am unofficially paying the money back by taking a lower salary for next year.
So here's the new question: If the overpayment was not processed, and my new contract is now in, minus the amount I owe, and this is all unofficial, what is my liability? I was planning to leave this job in two months before this happened, and I am wondering if there is any way for them to pursue when I give notice.

Thanks again for your help.

If you were overpaid, they can sue you or send it to collections for the difference. Basically the only way out of repaying this money is for the company to voluntarily agree to forgive it.