If you make deductions to an employee’s salary, they may make an unlawful deduction from wages claim against you.
Medi-HR Ltd provide you with a stress-free way of navigating this, allowing you to focus on areas of business that are important to you.
This blog is designed to give you an insight if this claim is made against you, what your rights are and when it is legal to make deductions from pay.
The definition of wages
The Employment Rights Act 1996 (ERA 1996) defines the term wages as sums of money paid to employees for the tasks they complete.
The term wage encompasses a few components of an employees pay. This includes any sums payable to the worker in connection with their employment. The following are all examples of wages:
· Any salary, holiday pay, bonuses, or contractual commissions whether payable under their contract or otherwise.
· One-off payments. For example, overtime payments.
· Statutory payments. For example, statutory sick pay / Covid Isolation Pay, or maternity & paternity pay.
· Statutory payments made in lieu of wages.
· Payment of “protective awards” for failure to adhere to minimum consultation times.
· Benefits will most likely come under your salary in this definition, providing they have a monetary value assigned to them. This is because for anyone to bring a claim against you, it must have a specific and quantifiable sum of money attached to it.
It is equally important to understand where payments are not wages as per the Employment Rights Act 1996. They are separate because of no connection made between the provision of services by the employee. Some of these include:
· Advances of wages/payments made under a loan agreement.
· Expense payments.
· Redundancy payments
· Pension contributions.
What is an illegal deduction from wages?
Unlawful deduction from wages in the UK is when a worker or employee has not received correct payment, through either an underpayment or failure to receive payment entirely. For employees with full-time contracts or otherwise.
The Employment Rights Act 1996 protects employees and workers from unauthorised deductions of wages, including late payments payable under their contract. Here are some examples of illegal deductions:
· Unpaid bonuses
· Unpaid, or underpayment of commissions
· Untaken holiday pay
· Delayed wage pages
Who does the Employment Rights Act 1996 protect?
The act states that all workers receive protection from unlawful deduction of wages. This definition includes not just employees but any individual(s) who have entered and employment contract with you to perform work or a service.
There is no required period of service to bring a claim to an employment tribunal and this is a day one employment right. Unlawful deduction of wages in the Employment Rights Act 1996 is weighted in favour of employees in this sense, making it a piece of legislation you must keep on top of.
Can an employer deduct wages without employee consent?
Yes, there are some limited situations in which you can deduct wages payable to the worker or employee. The Employment Rights Act 1996 outlines in sections 13-27 several scenarios in which you can legally deduct wages. There are two conditions, which are as follows:
1. The deduction is required or authorised by law: These are regular deductions required by the government, such as income tax, national insurance deductions, and student loan repayments.
2. It is contractually stipulated: The staff member will need a written copy of the terms, to receive a verbal explanation and agree to it in writing.
Exemptions exist to the above rule with an example being overpayment of wages in the month(s) previous, retaining of funds until employers’ goods are returned e.g., IT systems, though in such cases, conversations with the employee should always be documented.
Unlawful deduction of wages and sick pay
In your employment contracts, you may inform your employees.
An employer does not have to provide sick pay unless they qualify for statutory sick pay (SSP). However, you can set your own rates of sick pay, if it is not lower than SSP.
If an employee believes there has been an unlawful deduction after a sick day, an employment tribunal claim 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
As an employer, you may need to make pay cuts to help the business. Even if this is necessary to help the business, you should seek full written consent from an employee before you can do this, and the best way to achieve this is to undergo consultation period and explain clearly the employers’ financial standings, the impact, the alternatives, and the likely timeframes.
An employee does not have to accept this proposal and can work under protest. They may also resign if they believe you have breached the contract and claim constructive dismissal. 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. You can claim a fair dismissal as it was for the good of your business, based on the procedure you followed. You could also explore the option of reducing the hours worked as a suitable alternative.
For any support or guidance on this matter – please contact: info@medi-hr.co.uk or www.medi-hr.co.uk
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