Making deductions from wages is an emotive subject and needs to be handled carefully and lawfully by employers, otherwise it can create a number of issues up to and including employment tribunal claims.
What does the law say about deductions from wages?
The Employment Rights Act (1996) states that employees have the right not to suffer ‘unauthorised deductions from wages’. What does that actually mean in reality, can you make deductions from wages or not? The short answer is yes, as an employer you are permitted to make deductions from wages. That said a degree of caution must be exercised and the critical caveat is that any deductions from wages have to be lawful and justifiable.
Measures to have in place
In order for a lawful and justifiable deduction from wages to be made, it is absolutely essential for employers to have in place a robust deduction from wages clause in their contract of employment. By having such a clause, employees are then fully aware of it when issued with their contract, and by signing their contract they are agreeing to deductions being made if and when certain circumstances arise. Without such a clause an employer who attempts to make a deduction from wages is going to be taking a significant risk.
The contractual clause should cover employees causing damage which needs to be paid for due to negligence, carelessness, breaches of policies and procedures and even unlawful acts. For example, if an employee is messing about and through their carelessness breaks an item in the office, as long as they have a clear deductions clause in their contract then money can be deducted from their pay to cover the value of the broken item. A deductions clause should also include deductions for the repair or replacement of equipment and property entrusted to the employee, speeding or parking fines when driving company vehicles and attachment of earnings orders which are court orders to recover debts such as unpaid council tax bills or unpaid child maintenance. In addition, when an employee leaves employment, if they have taken annual leave in excess of what they have accrued based on their entitlement, then a deduction can be made that equates to the number of overtaken days. Likewise, if an employee is overpaid for any reason then it is useful to have a clause in place that allows a deduction to be made to recoup that overpayment.
Can a separate agreement be used?
Deductions can also be made if there are separate signed agreements in place in which the employee gives permission for the deduction. The most common usage of this type of agreement is when companies put in place training agreements to cover the cost of professional qualifications and the like. The agreement should clearly state the costs that the employee is liable for, that might just be the course fees, or it could include the cost of study materials such as books, as well as exam fees or professional association membership fees. A training costs agreement such also clearly lay out conditions under which the monies paid by the company would become repayable by the employee. Typically, that would include if the employee withdraws from the course without good reason, is dismissed from the course by the training provider or fails to make satisfactory progress by not attending the course regularly and/or not submitting work as required. Furthermore, if an employee leaves employment, unless their role is made redundant, then the fees again become repayable and a deduction can be made. These conditions usually remain in place on a sliding timescale from when the course started up to a point in the future post completion of the course and the greater the amount of time that elapses, the lower the repayment becomes. For instance, if an employee resigns within 6 – 12 months of completing the course, then by signing the training costs agreement and accepting its terms they might be liable for a deduction of 50% of the costs, if that is what the agreement states.
What else is there to consider?
Some deductions are legally allowed without specific agreement from the employee, for example deductions are made from pay in relation to tax and National Insurance contributions which an employer must make if certain criteria are met. If employers are making a deduction from wages, it is also good practice to put the details in writing so that the employee is aware of the impending deduction. This allows them the opportunity to adjust their budgeting if needed to take account of the deduction and also means that the employee can challenge the deduction before it is made if they believe it to be unlawful and unjustifiable.
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Why not also check out our blog on a similar topic What You Need to Know About Contracts
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