Unlawful deductions from wages
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| Introduction |
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| 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. |
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| Protection against unauthorised deductions |
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| Section 13 of ERA 1996 prohibits deductions from a worker’s wages unless: |
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- The deduction is required or authorised by statute or a provision in the worker’s contract; or
- The worker has given their prior written consent to the deduction.
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| What deductions can I make? |
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| You can make any deductions: |
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- Which are “required or authorised by statute”? For example, deductions for income tax and national insurance contributions. It also includes deductions made pursuant to the Attachment of Earnings Act 1971;
- Agreed in the employment contract. Of course if the deduction is made under a provision of the worker's contract then the worker must have seen the term or (if it is not a written contract) must have been told in writing of its effect before the deduction is made;
- The contractual provision has to make it clear that the deduction will be made from the worker's wages. You must also be able to show that the event justifying the deduction has occurred;
- Agreed by prior written consent. The worker's prior written consent has to be given prior to the event giving rise to the deduction, not just prior to the deduction itself;
- In order to reimburse the business in respect of an overpayment of wages or an overpayment in relation to expenses incurred by the worker in carrying out their employment, for example, a car allowance that exceeds the actual amounts incurred by the worker;
- Made in connection with any disciplinary proceedings;
- That is statutory payments due to a public authority (such as HM Revenue and Customs). The deduction 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 to be deducted, this is a matter between the worker and the relevant authority;
- Payable to third parties (for example, contributions to a pension scheme or trade union dues) made either pursuant to a contractual term (to which the worker has agreed in writing) or with their prior written agreement or consent;
- Made from a worker’s wages for taking part in a strike or other industrial action;
- Made to satisfy an order of a court or tribunal for the payment of an amount by the worker to the employer, provided the worker has given their prior written consent.
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| Threatened deductions are irrelevant. |
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| Unilateral reductions in pay |
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| If you, without contractual authority or individual or (if relevant) collective consent, reduce a worker’s wages, this will normally amount to a deduction. |
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| No overall reduction in pay |
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| 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. |
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| Remedies |
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| A worker's remedy for an unlawful deduction from their wages is to make a claim to an employment tribunal under section 23(1), ERA 1996. If the tribunal upholds the claim, it must make a declaration to that effect and order the employer to pay (or repay) to the worker the amount unlawfully deducted or received. |
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| Net Lawman tips: |
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- 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 worker’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.
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However, where for example, you pay the employee money and want it back in certain circumstances (for example, if you pay enhanced maternity pay but want to reserve the right to recover the enhanced payment if, for example, the employee does not return to work; or if the employer pays an employee’s course fees or the cost of training, but reserves the right to recover all or some of the cost if, for example, the employee does not complete or fails the course) then you should (before making the payment), require the employee to sign a form giving their written consent to the conditions of payment and return of the money.
Related documents: employment contract template | contract of employment
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