Deductions from wages

All workers (including employees) have a right not to have unlawful deductions made from their wages (UDW).  

 

What are “wages”?

 In order to claim that their wages have been unlawfully deducted, a worker must establish that the type of payment they were expecting to receive amounted to “wages”.

 

‘Wages’ is given a wide definition, covering ‘any sums payable to the individual by his employer in connection with employment’. Wages include:-

  • Salary, holiday pay or other emolument referable to the employment
  • Fees, bonuses, commission
  • Statutory sick pay*
  • Statutory Maternity Pay and Paternity Pay and Adoptive Leave Pay*
  • Statutory guarantee pay

 

*Entitlement to SSP, SMP, etc, is governed by Social Security legislation, rather than employment law. The EAT has decided that where an employer disputes that a worker is entitled to such payments, claims should not be made in the ET. The appropriate enforcement method is a complaint to HMRC, who have powers to order an employer to make statutory payments. Only where there is no dispute that the worker is entitled to payment, simply that it hasn’t been paid, is an ET appropriate.

 

Certain payments made in the course of employment or upon termination of employment are not classed as wages, such as:-

 

  • Redundancy payments
  • Ex-gratia payments
  • Expenses including car mileage allowance
  • Loans or advance of wages
  • Pensions, allowances or gratuities in connection with the worker’s retirement
  • Benefits in kind (eg childcare vouchers)

 

What deductions is an employer permitted to make?

 Employers cannot make any deduction from the wages of employees unless the deduction is:-

 

  • Authorised by statute i.e. tax and national insurance.
  • There is an express clause in the employment contract authorising the deduction.
  • The worker has signed a written agreement authorising a deduction, such as a subscription to a tea fund or company charity collection, contributions towards the cost of a uniform or corporate clothing, etc. But the worker must sign the agreement before the first deduction is made. An employer cannot compel an employee to sign an agreement after the event.

 

Certain deductions are excluded from the scope of the Employment Rights Act. If deductions are made in the following circumstances the employee will have no remedy:-

 

  • To recover overpayment of wages or expenses.
  • Disciplinary fines.
  • Deductions for strikes or industrial action.
  • Deductions in accordance with an attachment of earnings order
  • Payments to statutory bodies.
  • Payments to third parties by virtue of a contractual provision or signed agreement.
  • If the deficiency in payment is attributable to an error of computation.


Is there a maximum that can be deducted?

Where deductions are permitted, there are no general rules about how much can be deducted, expect in retail employment.

 

Those working in retail employment are given additional protection regarding the maximum amount of any deductions on account of cash or stock deficiencies. These cannot amount to more than 10% of weekly/monthly gross pay. This assumes the deductions are allowed at all under the general rules above. The 10% limit does not apply to the final wage packet of an employee who is leaving, when the whole amount can be deducted. When making deductions, the employer does not have to prove that the employee is responsible for the shortfall or even a theft. Nor do they have to take steps to recover the money by other means, such as an insurance claim.

 

Making a claim

The worker must make a claim for UDW to an employment tribunal within 3 months of the date of the deduction was made, or the payment of wages was due.

 

If there has been several deduction which form a “series” of deductions, the time limit starts from the last unauthorised deduction made, but the whole of the series of deductions before that date can be included in the claim. However the Employment Appeal Tribunal has decided that where more than three months has passed between deductions this will break the series of deductions and stop a claim at that point.

[Bear Scotland v Fulton and others (2014) UKEAT 0047/13 at paragraphs 80-81]

 

On 8 January 2015 new regulations apply to claims for unauthorised deductions from wages. Where a claim for wages or holiday pay is presented to a tribunal after 1 July 2015 the tribunal can only consider deductions of wages that were made up to two years before the claim. Claims for other payments such as statutory maternity pay, adoption pay, time off for trade union duties and pay during medical suspension can still be made.

[The Deduction from Wages (Limitation) Regulations 2014] 

 

Example

C works in a shop and has had money deducted from her wages every time her till was short. This has been going on for 6 months. On 27 January her employer told her that someone had given her a forged cheque for £500 and it would be deducted from her next wages, which are due to be paid on 5 February. She has never agreed to deductions of this nature. Her time limit for making claim for UDW will run from the date of the deduction (5 February) rather than when she was told about the deduction. The earlier deductions are probably similar enough in nature to amount to a “series of deductions”, so she can also claim for any amounts deducted over the last 6 months

Need to understand a word or phrase?

Employment Law Glossary

Help us and win £10!

User survey

Thu

26

Feb

2015

Zero increases by 26%

The Office for National Statistics has released new figures that show nearly 700,000 people work on zero hours contracts - up 26% from last year.  The problems caused by these contracts will require a significant change in the law.

Read More 0 Comments