Unlawful Deduction from Wages

What are "wages"?

"Wages" include any sums paid by an employer to a worker in connection with his or her job and include :-

• bonuses or commission
• holiday pay
• statutory payments, such as statutory sick pay or statutory maternity pay
• contractual payments such as contractual sick pay
• luncheon vouchers, gift tokens and other vouchers which can be exchanged for money, goods or services. 

Wages do not include :-

• loans or advances upon wages
• expenses incurred in employment
• pension and redundancy payments
• lump sum payments made on retirement or as compensation for loss of office
• tips paid by a third party

When can deductions be lawful?

• Lawful deductions are strictly regulated by the Employment Rights Act 1996.  Deductions are unlawful unless :-
• authorized by statute (for example income tax or national insurance contributions); or
• authorized by the contract of the worker provided that the worker has been given a copy of the relevant terms or a written explanation before any deduction is made; or
• the worker has agreed in writing before the deduction is made.

Overpayment of wages

Where an employer overpays a worker, for whatever reason, the employer is justified in reclaiming those sums and no specific rules govern when and how this should be done.  Other issues may arise in such circumstances and legal advice should be taken.

Other circumstances in which deductions can be made by an employer

The conditions for an employer to lawfully make deductions from a worker's wages as detailed above do not have to be met where the deduction is :-

• as a consequence of disciplinary proceedings if those proceedings are held by virtue of a statutory provision; or
• where the deductions are made as a consequence of the worker taking part in a strike/industrial action; or
• where the worker agrees to a deduction being made to satisfy a court order or a tribunal decision.

What if my employer has paid me no wages?

If an employer fails to pay wages which are properly owed to a worker this is considered an unlawful deduction.  

What can be done if an unlawful deduction is made by an employer?

If an unlawful deduction from wages is made initially a worker should write to his/her employer setting out why it is considered an unlawful deduction has occurred and asking for payment to be made within a specified short period.        If the employer fails to make payment a worker may present a claim to an Employment Tribunal.   

What are the time limits for complaining to an Employment Tribunal?

Any complaint must normally be made to the Employment Tribunal within three months of the date upon which the wages were due to be paid.     In the case of a series of deductions the three months time limit runs from the last deduction. 

Since the introduction of statutory dismissal, disciplinary and grievance procedures on lst October 2004 the normal three month time limit will be extended by a further three months, for claims made by workers, in particular circumstances relevant to those procedures.  

Workers in retail work

Special rules apply covering cash shortages or stock deficiencies for those working in retail employment such as shop workers, bar staff and the like.  Employers may make deductions from wages to recover cash shortages or stock deficiencies only if, in addition to the normal lawful deduction provisions, the employer :-

• informs the worker, in writing, of the total shortfall to be recovered before the deduction is made.
• issues a written demand on a pay day for the repayment.
• makes a deduction - or the first in a series of deductions - no earlier than the first pay day after telling the worker of the shortfall, or, if the worker is told on a pay day, not before that day
• does not deduct more than one tenth of the workers gross pay on any given pay day with any remaining shortfall to be recovered on future pay days
• makes the first deduction within twelve months of discovering the shortage.

 If a worker leaves his or her job and the shortfall is still owed the 10% rule does not apply.

Please contact us for further information.