If an employee claims you’ve unlawfully deducted an amount from their salary, then unlawful deductions of wages claim could get made against you. If this happens, what is your legal standing, and how can you avoid future disputes with your staff?

Employee wages

First off, what counts as a wage? The Employment Rights Act 1996 (ERA 1996) classes wages as sums of money paid to employees for the tasks they complete.

A wage includes salary, holiday pay, bonuses, or commission as part of their contract (this can sometimes include one-off payments, such as any accrued overtime).

Can an employer deduct wages without consent?

This is a common question, but the ERA 1996 protects employees and workers. Sections 13-27 explain procedures and the situations in which you can legally deduct wages.

You can only deduct wages based on one of three conditions. The Acas unlawful deduction of wages clarifies this as:

  1. British law requires it, such as income tax, national insurance deductions, and student loan repayments.
  2. The employee’s contract authorises it, although the staff member will need a written copy of these terms and have them explained to them. Remember, a signed agreement to the terms puts you in the best position.
  3. The employee has consented to the deductions in writing.

Exemptions exist to the above rules, an example being if you overpay your staff. In the event of this, you’ll need to agree with your staff member a suitable way for you to reclaim your money.

Before making any deductions, you have to state in writing the full amount they owe. It may be beneficial for you to establish a deduction from wages letter template to establish a business procedure. Employees must also provide a written response, declaring their consent, before a deduction.

Unlawful deduction of wages

There are several illegal deductions of wages employees may face. These include:

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

If an employee believes they have had their wages deducted, they can try and negotiate with you about the issue, or make an employment tribunal claim.

When an employee makes such a claim, it has to be within three months of the contractual breach. If a claim is for several wage deductions, it is applicable from the last deduction.

Unlawful deduction of wages sick pay

In your employment contracts, you may inform your employees they’ll receive their standard wage if they’re absent due to illness.

If an employee believes there’s been an unlawful deduction after a sick day, an employment tribunal 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.

Pay cuts

In the event you want to make a pay cut for a staff member, you have to get their consent before you can go ahead. You will need to put this in writing for them, as well as for your records.

Employees can reject your proposal and work under protest. Additionally, they could resign if they believe you have breached their contract.

It is within the employee’s rights to also create an unlawful deduction of wages grievance letter. With this, the employee can claim for an unlawful deduction of wages, a breach of their contract, or a constructive dismissal (if they’ve already resigned). Do remember you don’t need to have made a grievance for there to be a claim.

From your side, 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. In this instance, you’d be in a position to claim a fair dismissal as it was for the good of your business.

For further help

Looking for further assistance with unfair deduction of wages? We’re available 24/7 on our helpline: 0800 028 2420.