EXECUTIVE REPORT


Rules of deduction


Clear legal guidelines state when deductions can be taken from an employee’s wages. Adam Bernstein explains.


Workers are protected from having deductions made from their wages except in certain specific circumstances. The law puts the onus firmly on employers to obtain authorisation from the employee before any deductions are made. The aim is to safeguard staff from unscrupulous employers, but managers need to protect themselves, too.


Andrew Rayment, a partner in the employment department of law firm Walker Morris, notes that section 13 of the Employment Rights Act 1996 sets out the provisions that protect workers from unauthorised deductions (known as unlawful deductions) being made from their wages: “Quite simply, the law says it is unlawful for an employer to make a deduction from a worker's wages unless the deduction is required or authorised by statute, or there’s a provision in the worker's contract, or the worker has given their prior written consent to the deduction.”


He points out that, unlike breach of contract claims which can only be brought after the employment has ended, employees can bring unlawful deductions claims in Employment Tribunal while their employment is ongoing. Further, the protection applies to all workers. This includes not only an employee, but an individual who is not in business on their own account. “In practice,” Andrew Rayment says, “anyone who is on your payroll regardless of whether they are full-time, part-time, casual, direct agency hire or zero-hours will be protected.”


Consequential loss


Late payment of wages still counts as a deduction. However, if the employer subsequently pays the wages in full, Andrew Rayment says a tribunal would not order the sum to be paid again, “although it may order the employer to compensate the worker for consequential loss, such as bank overdraft charges caused by the late payment.”


As mentioned above, an employer can lawfully make a deduction if the payment is required or authorised by statute, such as for Income Tax and National Insurance contributions under PAYE, and deductions made under the Attachment of Earnings Act 1971. However, regarding deductions “if authorised by a provision in the worker’s contract”, these will not be unlawful if it has been set out in


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a written contract which has been given to the worker before the deduction was made. The contractual provision must make it clear that the deduction may be made from the worker's wages and, obviously, the employer must also be able to demonstrate that the event justifying the deduction has occurred.


Written consent


Andrew Rayment says that “employers should always make sure that their employment contracts contain a specific clause to authorise deductions from wages or other payments due to the employee in the event that the employee owes money to the company.”


For deductions “allowed because the worker has given prior written consent”, these will not be unlawful if “the worker has previously signified in writing his agreement or consent to the making of the deduction”. The written consent must be given before the event giving rise to the deduction (“so no getting the worker to sign just before the deduction is made,” says Andrew Rayment) and it must make clear that the deduction may be made from the worker’s wages.


“It is always advisable to obtain prior written consent from the employee in cases where, for example, the employer pays enhanced maternity/paternity/shared parental or adoption pay but reserves the right to recover the enhanced payment if, for example, the employee does not return to work; loans the employee a sum of money (say a season ticket loan); or pays an employee’s course fees or the cost of training but reserves the right to recover all or some of the cost if, for example, the employee does not complete or fails the course.”


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