If you make deductions to an employee’s salary, they may make an unlawful deduction from wages claim against you.
Employment law consultants provide you with a stress-free way of navigating this, allowing you to focus on areas of business that are important to you.
This guide looks at what you need to know if this claim is made against you, what your rights are and when it is legal to make deductions from pay.
The definition of wages
The Employment Rights Act 1996 (ERA 1996) defines the term wages as sums of money paid to employees for the tasks they complete.
The term wage encompasses a few components of an employee's pay. This includes any sums payable to the worker in connection with their employment. The following are all examples of wages:
- Any salary, holiday pay, bonuses or contractual commissions whether payable under their contract or otherwise.
- One-off payments. For example, overtime payments.
- Statutory payments. For example, statutory sick pay or maternity pay.
- Statutory payments made in lieu of wages.
- Payment of “protective awards” for failure to adhere to minimum consultation times.
Benefits will most likely come under your salary in this definition, providing they have a monetary value assigned to them. This is because for anyone to bring a claim against you, it has to have a specific and quantifiable sum of money attached to it.
The ERA 1996 and case law have also set out where payments are not wages. They are separate because of no connection made between the provision of services by the employee. Some of these include:
- Advances of wages/payments made under a loan agreement.
- Expense payments.
- Redundancy payments.
- Pension contributions.
What is an illegal deduction from wages?
Unlawful deduction from wages in the UK is when a worker or employee has not received correct payment, through either an underpayment or failure to receive payment entirely. For employees with full-time contracts or otherwise.
The ERA 1996 protects employees and workers from unauthorised deductions of wages, including late payments payable under their contract. Here are some examples of illegal deductions:
- Unpaid bonuses
- Unpaid, or underpayment of commissions
- Untaken holiday pay
- Delayed wage pages
Who does the ERA 1996 protect?
The act states that all workers receive protection from unlawful deduction of wages. This definition includes not just employees but any individual(s) who have entered employment contracts with you to perform work or a service.
There is no required period of service to bring a claim to an employment tribunal. Unlawful deduction of wages in the ERA 1996 is weighted in favour of employees in this sense, making it a piece of legislation you must keep on top of.
Can an employer deduct wages without consent in the UK?
Yes, there are some limited situations in which you can deduct wages payable to the worker or employee.
The ERA 1996 outlines in sections 13-27 several scenarios in which you can legally deduct wages. There are two conditions, which are as follows:
- 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.
- It is contractually stipulated: The staff member will need a written copy of the terms, to receive a verbal explanation and agree to it in writing.
Exemptions exist to the above rules, examples being overpayment of wages or where employees have taken part in a strike or industrial action. In the event of this, you must agree with your staff member a suitable way for you to reclaim your money.
Unlawful deduction of wages and sick pay
In your employment contracts, you may inform your employees
An employer doesn’t have to provide sick pay unless they qualify for Statutory Sick Pay (SSP.) However, you can set your own rates of sick pay, as long as it is not lower than SSP.
If an employee believes there has been an unlawful deduction after a sick day, an employment tribunal claim could occur. There is an unlawful deduction of wages time limit to keep in mind—it has to be within three months of the alleged deduction.
As an employer, you may need to make pay cuts to help the business. Even if this is necessary to help the business, you need to get consent from an employee before you can do this.
You will need to present this in writing to your employees and have a copy for records. An employee doesn’t have to accept this proposal and can work under protest. They may also resign if they believe you have breached the contract and claim constructive dismissal.
If the employee doesn’t agree to the pay cut terms, then you can end their existing contract and start a new one with them.
This could trigger an unfair dismissal claim, which could lead to an employment tribunal. You can claim a fair dismissal as it was for the good of your business, based on the procedure you followed. You could also explore reducing their hours.
For 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 we’re available 24/7 on our helpline: 0145 585 8132.
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