What you need to know about illegal deductions from wages

Croner covers what qualifies as an illegal/unlawful deduction of wages, unpacking what counts as a ‘wage’, instances where deductions can be counted as unlawful, and The Employment Rights Act 1996 (ERA).

If you make illegal deductions from an employee's wages, they can claim an unlawful deduction.

In this guide, Croner will cover how to handle these claims, what your rights are, and when it is legal to make deductions from pay.

Croner's employment law consultants can provide expert legal advice and payroll support as and when you need it. Call 01455 858 132

• What doesn't count as a wage?
• What counts as illegal deductions from wages?
• Can an employer deduct wages without consent in the UK?
• Unlawful deduction of sick pay
• Pay cuts
• Unlawful deduction of wages: Get further help

The definition of wages

The Employment Rights Act 1996 (ERA) defines 'wage' as a sum of money paid to employees for the tasks they complete.

The term encompasses several components of an employee's pay. To understand what a wage includes, let's look at the following wage examples:

• Statutory payments made in lieu of wages.
• One-off payments, such as overtime payments.
• Statutory payments, such as Statutory Sick Pay (SSP) or maternity pay.
• Payment of 'protective awards' for failure to adhere to minimum consultation times.
• Any salary, holiday pay, bonuses or contractual commissions whether payable under their contract or otherwise.

Employee benefits don't fall under wages; rather, an employee’s salary. This is because benefits don't involve a transaction of a sum of money. Understand that, for a claim of illegal deductions from wages to made, a transaction needs to have occurred. However, some transactions do not count as wages.

What doesn't count as a wage?

The ERA 1996 and case law have also set out where payments are not wages. The lack of connection between the labour provided by the employee and the transaction separates them.

The following is a non-exhaustive selection of these instances:

• Advances of wages/payments made under a loan agreement.
• Expense payments.
• Redundancy payments.
• Pension contributions.

What counts as illegal deductions from wages?

In the UK, unlawful deductions from wages occur when a worker or employee has not received the correct payment. This can occur because of an underpayment. This definition applies to all workers, no matter their employment status (full-time contracts and/or part-time).

Who does the ERA 1996 protect?

The ERA 1996 protects all workers who have entered an employment contract to perform work or a service. The act prohibits illegal deductions from wages, including late payments.

Below is a non-exhaustive list of possible illegal deductions:

• Unpaid bonuses.
• Unpaid holiday pay.
• Delayed wage payments.
• Unpaid, or underpayment of commissions.

Employers should note that a claim to an employment tribunal of illegal deductions from wages can be made, no matter the length of an employee's service.

Can an employer deduct wages without consent in the UK?

Yes, there are cases where an employer can deduct an employee's wages without consent.

The ERA 1996 outlines, in sections 13-27, several scenarios in which employers can legally deduct wages. Two conditions exist that regulate these instances, which are as follows:

1. The deduction is required or authorised by law: These are regular deductions required by the Government, such as income tax, national insurance deductions, and student loan repayments.
2. It has been consented to contractually: The staff member will need a written copy of the deduction terms and must have agreed to it in writing prior.

Exemptions exist to the above rules. Examples include overpayment of wages. In this event, employers must agree on a suitable way to reclaim this money with the staff member(s).

Unlawful deduction of sick pay

An employer doesn’t have to provide sick pay unless the relevant employee qualifies for Statutory Sick Pay (SSP). However, you can set your own rate of sick pay if it is not lower than SSP.

If an employee believes there has been an unlawful deduction after a sick day/after a fit note has been supplied, an employment tribunal claim could occur. To be valid, this claim needs to be made within a three-month time limit from when the deduction occurred.

Pay cuts

As an employer, you may need to make pay cuts to help your business survive in difficult times. Even if this is necessary to help the business, you need to obtain consent from the relevant employee(s) before proceeding. You will need to present this in writing to your employees, retaining a copy for your records.

An employee doesn’t have to accept this proposal and can work under protest. However, they may resign if they believe you have breached their contract, claiming constructive dismissal.

Unlawful deduction of wages: get further help

Looking for further help with an unfair deduction of wages and other issues? We have experience with unlawful deduction of wages case law and are available 24/7 to help you. Simply call 01455 858 132 for same-day assistance.

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