Unlawful deductions from wages
This article explains the protection given to workers in relation to deductions from their wages under the Employment Rights Act 1996.
Sections 13 to 27 of the Employment Rights Act 1996 (ERA 1996) set out the provisions that protect workers from unauthorised deductions from their wages.
An employer can deduct money from wages under certain, limited circumstances. Those are:
When the deduction is "required or authorised by statute"
Examples of this include deductions for income tax and national insurance contributions. It also includes deductions made under the Attachment of Earnings Act 1971.
Statutory payments due to a public authority (such as HM Revenue and Customs) can also be deducted. These will be lawful as long as the employer deducts the amount specified by the authority. If the worker believes that the authority has incorrectly calculated the amount, this is a matter between the worker and the relevant authority to resolve.
If the employee has agreed to it
There are several ways in which an employee might give his or her consent.
The first is by prior written consent (which includes e-mail). The the consent must be given before the event that leads to the deduction, not just before the deduction.
For example, you might agree that you are happy for a certain period of overtime to be paid at normal hourly rates instead of double rates. But your agreement to it must take place before you work the hours, rather than after.
The second way in which an employee can agree is if the deduction is a term in the employment contract. Of course, the worker must have seen the term, either by being told about it (which is possible, but can't easily be proven) or by having signed a contract with it in.
The contractual provision has to make it clear that the deduction will be made from the worker's wages. The employer must also be able to show that the event justifying the deduction has occurred.
When made in connection with any disciplinary proceedings, or by order of a court or tribunal
The employee still needs to give written consent but is likely to have been obliged to do so by the court or tribunal.
In order to reimburse the business in respect of an overpayment or to repay a debt to a third party
The overpayment might be one of wages or one in relation to expenses incurred by the worker in carrying out their employment. A common example is an advance on a car allowance payment made by the employer that subsequently turns out to be less than first thought.
Debts payable to third parties might include contributions to a pension scheme or trade union due. These would become payable either because of a contractual term in the employment agreement or with the prior written agreement or consent of the employee.
For taking part in a strike or other industrial action
Strike is equivalent to not working for a period, and therefore wages can be reduced accordingly to time not at work.
If an employer, without contractual authority or individual or collective consent, reduces a worker’s wages then this would normally amount to a deduction.
If you make an unlawful deduction but, at the same time, increase another element of the worker's remuneration so that there is no overall reduction in pay, there will still be an unlawful deduction from wages.
A worker's remedy for an unlawful deduction from his or her wages is to make a claim to an employment tribunal under section 23(1) of the ERA 1996.
If the tribunal upholds the claim, it must make a declaration to that effect and order the employer to repay to the employee the amount unlawfully deducted or received.
If you recover payments due from workers in breach of the relevant provisions of ERA 1996, you risk losing the right to recover the amount in question at all.
Ensure that you have the employee’s written consent to make the appropriate deduction before attempting to do so. You can do this by inserting a provision in the employee’s contract.
There may be circumstances where you pay the employee money and want it back in if something does not happen. Examples include:
- if you pay enhanced maternity pay but want to reserve the right to recover the enhanced payment if the employee does not return to work
- if you pay an employee’s course fees or the cost of training, conditional on reserving the right to recover all or some of the cost if the employee does not complete or fails the course
If so, then you should (before making the payment), require the employee to sign a form giving his or her written consent to the conditions of payment and return of the money.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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