Adam Bernstein reports on the pitfalls associated with deductions from employee wages.

eed to make a deduction from an employee’s wages? Do you know the legal rules about when you can and can’t make a deduction? Few realise that workers are protected from having deductions made from their wages, except in certain specific circumstances.

The law puts the onus firmly on employers to obtain authorisation from the worker before any deductions are made. The aim is to protect staff from unscrupulous employers, but employers also need to protect themselves against falling victim to the strict legal rules.

A number of heating firms have already been caught out. In September 2017, Paul Thewlis, trading as Universal Heating and Plumbing, was ordered to pay £1,800 to a claimant. And, in the same month, HE Heating Supplies was told to pay another claimant £1,622.99. There are plenty of other cases affecting the sector.

Andrew Rayment, a Partner in the employment department of law firm Walker Morris, notes that section 13 of the Employment Rights Act 1996 sets out the provisions that protect workers from unauthorised deductions (known as unlawful deductions) being made from their wages.

He explained: “Quite simply, it is unlawful for an employer to make a deduction from a worker’s wages unless the deduction is required or authorised by statute, or there is a provision in the worker’s contract, the worker has given their prior written consent to the deduction.”

He points out that, unlike breach of contract claims, which can only be brought after the employment has ended, employees can bring unlawful deductions claims in the employment tribunal while their employment is ongoing.

Furthermore, he says the protection against unlawful deductions from wages applies to all workers. This includes not only an employee, but an individual who is not in business on their own account. “In practice, anyone who is on your payroll regardless of whether they are full-time, part-time, casual, direct agency hire or zero-hours will be protected,” said Andrew.

And late payment of wages still counts as a deduction. However, if the employer subsequently pays the wages in full, a tribunal would not order the sum to be paid again, “although it may order the employer to compensate the worker for consequential loss, such as bank overdraft charges caused by the late payment”, says Andrew.

Lawful deductions

Under the heading of ‘required or authorised by statute’, an employer can lawfully make a deduction from a worker’s wages if the payment is required or authorised by statute. This includes deductions for income tax and national insurance contributions under the PAYE system, and deductions made under the Attachment of Earnings Act 1971.

But, if authorised by a provision in the worker’s contract, a deduction will not be unlawful if it has been set out in a written contract which has been given to the worker before the deduction was made. The contractual provision must make it clear that the deduction may be made from the worker’s wages and, obviously, the employer must also be able to demonstrate that the event justifying the deduction has occurred.

In short, Andrew says that employers should always make sure that their employment contracts contain a specific clause to authorise deductions from wages or other payments due to the employee in the event that the employee owes money to the company.

But what of cases where the worker has given prior written consent? Here a deduction will not be unlawful if “the worker has previously signified in writing his agreement or consent to the making of the deduction”.

The written consent must be given before the event giving rise to the deduction (so no getting the worker to sign just before the deduction is made, says Andrew), and the written consent must make it clear that the deduction may be made from the worker’s wages.

The advice? Andrew says that it is “always advisable to obtain prior written consent from the employee.”

An example of this might be where the employer pays enhanced maternity/paternity/shared parental or adoption pay but reserves the right to recover the enhanced payment if, for example, the employee does not return to work and loans the employee a sum of money (say, a season ticket loan).

Another scenario might be where 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.

There is a further sting in the tail however, once an employment tribunal has ordered an employer to pay back an amount that has been deducted unlawfully, the employer cannot attempt to recover that money later in another way, for example by bringing a civil action in the county court.

“This rule applies even though the sum may have been properly due from the employee to the employer. The fact that the employer has sought to recover it unlawfully effectively extinguishes the previous debt and the employer does not get a second bite at the cherry,” Andrew explained.

You have been warned.