This page printed on
07 Feb 2018 at 10:20

For reference, the url of this document is:

www.seemp.co.uk/index/hrhs/whatsnew/employmentaz/eld/deduction_from_wages.htm

© South East Employers 2018

Employment A-Z

D

 

Deduction from Wages

A deduction from wages occurs when the total amount of an employee's wages is less than the total amount properly due to him/her for the work they have carried out on that occasion. There is no distinction between a non-payment and a deduction.

Under ss.13(1) and 15(1) of the Employment Rights Act 1996, an employer may not make any deductions or receive any payment from a worker's wages unless:

  • the deduction or payment is required or permitted to be taken by statute (e.g. income tax) or by a relevant provision in the worker's contract (e.g. overpayment of annual leave); or
  • the worker has given prior written consent that the deduction or payment be made from his/her wages.

Any deductions made outside this are 'unlawful' deductions from wages.

The right is extended to all employees and workers, including those working under a contract of employment, or apprenticeship, or under any contract personally to perform any work or services. For example, most independent contractors and consultants are 'workers'.

Deductions under Statute

Deductions required or authorised by statute include attachment of earnings orders or any other statutory provision requiring or authorising deductions from the worker's pay.

Deductions under a relevant provision in the worker's contract

A relevant contractual provision which allows an employer to make a deduction from wages may be written or oral, and may even be implied, provided the worker has been notified of the contractual term prior to the deduction being made.

Worker's prior written agreement

Any written agreement from the worker must not simply be an agreement that he/she owes their employer money. It must be an agreement that the money can be deducted from his/her wages. The worker must consent prior to the event that gives rise to the deduction, to give the worker protection against being unduly pressurised into agreeing to the deduction after the incident, e.g. learning agreement stipulating repayment of costs of training if the employee resigns. The deduction must actually be made for the reason stipulated in the written agreement.

Justifying deductions

The employer must be able to justify making the deduction even when such deduction is authorised by a relevant provision or written agreement. See MBL UK Ltd v Quigley EATS/0061/08 where a deduction to recover the costs of training was made from final salary after his employment being terminated during the probationary period. The EAT ruled that all the training he had received up to dismissal had been on-the-job, the contractual clause operated as a penalty clause and ruled the deduction unlawful.

There are circumstances where the right not to suffer an unauthorised deduction from wages does not apply. These are deductions made in respect of:

  • overpayment of wages;
  • overpayment of expenses incurred in carrying out employment;
  • any statutory disciplinary proceedings (applicable to public sector workers such as police and fire and rescue services);
  • a requirement placed upon the employer by statute to make payments of specified sums to a public authority (e.g. child maintenance payments made under a deduction from earnings order);
  • payments to a third party that have been agreed by the worker in advance in writing (e.g. union subscriptions);
  • the worker having taken part in a strike or other industrial action;
  • a court order requiring payment by the worker to the employer;
  • an error of computation on the part of the employer resulting in a deduction (e.g. a genuine arithmetical error)
 

What is and is not included in wages?

Included:

In addition to remuneration for undertaking the job the following form part of wages from which an employer may not make unauthorised deductions:

  • any fee, bonus, commission, holiday pay or other emolument referable to employment, whether contractual or not;
  • guarantee payments;
  • statutory sick, maternity, paternity, adoption, shared parental pay;
  • pay during suspension on medical or maternity grounds;
  • payments made where the supply of an agency worker is ended on maternity grounds;
  • payment for time off to look for work or arrange training while under notice of redundancy; time off for antenatal care, time off to carry out duties as an occupational pension scheme trustee, employee representative or trade union official, and time off as a young person for study or training;
  • payments ordered as compensation for failure to reinstate or re-engage after a finding of unfair dismissal;
  • payments due under an order for the continuation of the contract of employment;
  • remuneration under a protective award against an employer for failure to consult employee representatives in connection with a collective redundancy.

Not Included:

  • advances under loan agreements;
  • advances of wages;
  • expenses incurred in carrying out employment;
  • pensions;
  • redundancy payments;
  • compensation for loss of office;
  • payments that are not referable to a worker's capacity as a worker;
  • benefits in kind other than those capable of being exchanged for money, goods or services.

Is there anything deductions can not be taken from?

Yes. Deductions can only be taken from attachable earnings, i.e. the employee's remuneration, including bonuses, commission, statutory sick pay, overtime pay and in some cases pensions. Earnings that are NOT attachable are:

  • statutory maternity, paternity, adoption and shared parental leave pay;
  • pensions or allowances payable in respect of disablement or disability;
  • a guaranteed minimum pension within the meaning of the Social Security Pensions Act 1975.
 
 
 

Clause for inclusion in contracts of employment:

Where you owe [insert name of organisation] a sum of money, whether due to overpayment of salary, taking too much annual leave or as a result of a loan being made, we reserve the right to deduct an appropriate sum from your wages either during, or at the end of your employment. If after your employment with us has ended, there is still an outstanding amount due, this will be treated as a debt and referred to the finance department for recovery [amend as appropriate].

 

Holiday pay and commission: British Gas to appeal tribunal decision in

Lock v British Gas Trading Ltd and another ET/1900503/2012