How to deduct the lawful way
There are many situations in which you might need to make a deduction from an employee’s pay, e.g. to recover training costs. However, the law lays down strict rules here. So what do you need to know to play it safe?
The law says
The Employment Rights Act 1996 says that you may not make deductions from wages unless; (1) they are authorised by statute or a “relevant provision” in the employment contract or; (2) the individual worker has agreed to the deductions in writing (a relevant provision is defined as a written term of the contract given to and agreed by the worker before the deduction is made).
Lawful deductions
The normal deductions that an employer regularly makes are those related to PAYE and NI. These are deductions required by statute but can also include those authorised by a court, e.g. a court order to recover debt or to recover fines for criminal offences. In addition, the law says that the overpayment of wages and/or expenses incurred by the worker in carrying out their employment, including as a result of a computational error, can be recovered. So in these cases, there’s no problem making a deduction from pay.
Unlawful deductions
However, there may be other occasions when you need or want to make deductions that aren’t “lawful”. For example, you might need to make deductions on termination of employment if the worker has taken more than their accrued holiday entitlement; if a worker drops out of, or leaves during or straight after an employer-funded further education or training course; to recover the cost of damage caused by the worker and the recovery of any loans or advances. These are all very common situations but without the right agreement/paperwork, you can’t do it.
Complications? There’s no statutory right to make any of these deductions from a worker’s wages unless there’s a “relevant provision” written into their contract of employment, or they’ve signed a written agreement before any deductions are made. What’s more, you cannot make deductions which relate to the actions or conduct of a worker unless they’ve given consent prior to the event. This is to inhibit any pressure being put on them to agree to the deduction.
The lawful way
It’s essential that the contract contains a written “relevant provision” which clearly defines the conditions under which you can make deductions; this should include the right to recover overpayments (not just of salary).
Tip. When providing a worker with a loan, advance and/or funding for further education or training make sure, before providing the facility, that there’s a clear and unambiguous policy in place, signed by the worker, which enables you to recover any payments during, or on termination of their employment.
For instance in providing the cost of a worker’s further education you may want to make it a condition that you can recover all or part of the cost incurred if the worker drops out of the course, their employment is terminated due to gross misconduct, or they give notice to leave your employment within twelve months of completing the course.
The next step
For a free relevant provision to enable you to make deductions visit http://personnel.indicator.co.uk (PS 08.13.05).
Create your profile to unlock this advice and many more.