The deduction of wages remains a grey area for many employers. The possibility of miscalculation or the risk of a tribunal are enough to raise concerns.
Having a clearer idea of laws and procedures surrounding the deduction of wages will ease your worries. And who better to explain those laws to you than the experts?
Who is protected?
Rules on unlawful deduction of wages apply to employees, workers and some other groups such as apprentices and people working under a contract for services.
When can I deduct wages?
Under section 45 of the Employment Rights (NI) Order 1996, employers cannot make deductions from wages unless the following apply:
- The deduction is required or authorised by the contract of employment.
- The individual has signified, in writing, their agreement or consent in advance.
- The deduction is required or authorised by the law. For example, National Insurance, income tax and student loan repayments.
If you have overpaid wages, the Employment Rights Order allows deductions, but this should be done with caution. You should check the individual’s contract to see if there is an express term that wages can be deducted in the event of overpayment.
An employee or worker can bring a claim to the employment tribunal, as unlawful deduction of wages would amount to a breach of contract. As a result, the employee may be awarded two to four weeks of pay, plus the money that was deducted from them.
What is the procedure?
If you want to make a deduction of wages you must write to the individual stating how much they owe, and how it will be repaid. If the contract states that deductions can be made, you should refer to this and enclose a copy for reference. A deduction should not reduce an individual’s pay below the National Minimum Wage.
What about retail workers?
There is extra protection for retail workers. If there is a shortage in the till or in stock, you can take up to 10% of their gross wages for a pay period. If this is not enough, you can take more money on paydays thereafter, but never more than 10%.
What are the risks?
Deducting wages from an employee can be risky. If you unlawfully deduct wages, you’ll be at risk of an unlawful deduction of wages claim. An individual will have three months to put in this claim to the employment tribunal. To minimise the risk of a claim, it may be useful to hold a wastage and deduction policy for overpayments to allow for deductions to be made from employees’ wages.
For further information on the deduction of wages, speak with an expert on 0800 917 0771. Or, complete a contact form to receive a callback.