Deductions from Pay

§  As a general rule (there are exceptions) a worker's wages or salary are inviolate. This means that, in the absence of any statutory duty to make certain deductions from a worker's pay (eg, in respect of PAYE (income tax) and National Insurance contributions) or a relevant provision in the worker's contract of employment, an employer must not presume to deduct any other sum of money (for whatever purpose) without the written permission of the worker concerned or without the authority of a court order.

Protection of wages

§  Legislation regulating deductions from pay (and demands for payment) is to be found in Part II of the Employment Rights Act 1996, section 13 of which states (inter alia) that an employer must not deduct any sum from the wages or salary of any worker unless:

a.     his (or her) right to make that deduction is clearly laid down in writing in the worker 's contract, or in the written statement of employment particulars necessarily issued to every worker (qua employee) in accordance with sections 1 to 7 of the Employment Rights Act 1996, or in some associated document, signed and dated, a copy of which must have been supplied to the worker in advance of any deduction; or

b.    the worker had previously given his consent in writing to the making of that deduction.

§  Furthermore, any term in a worker's contract relating to deductions from pay will apply only to incidents or events occurring after the date on which that term was agreed to by the worker and inserted in his (or her) contract. Likewise, any subsequent written consent given by a worker (concerning deductions from his pay) will apply only to events or incidents occurring after the date on which that consent was given. What this means is that an employer cannot lawfully require a worker to give retrospective consent to a deduction from his pay in respect of an incident (such as a cash shortage or damage to goods) that occurred before that consent was obtained (ibid. section 13).

Demands for payment

§  The same principles apply when an employer demands a payment from an employee. An employer cannot insist on an employee paying him a sum of money (for whatever reason) unless his right to do so, and the circumstances in which he can exercise that right, are clearly laid down in the employee's contract of employment (a copy of which must have been made available to the employee before the incident that prompted the employer's subsequent demand for the sum of money in question). Alternatively, the employee must have consented in writing to pay a sum of money on demand. Again, the employee must not only have given his (or her) written consent before the incident that prompted the demand for payment but must also have specified in that consent the particular circumstances that would entitle the employer to demand such a payment (ibid. section 15).

Exceptions

§  The rule restricting the right of an employer to deduct money from an employee's pay or to make a demand for payment does not apply:

a.     to the recovery or reimbursement of overpaid wages or salary, or any overpayment in respect of business expenses incurred by the employee in carrying out his employment;

b.    to third party requests for deductions (eg, under an SAYE scheme) in accordance with any relevant provision in the employee's contract of employment or that the employee had previously authorised in writing;

c.     to attachment of earnings (or garnishee) orders made by a court

d.    to deductions (or payments) made (or required) by the employer on account of the worker's having taken part in a strike or other industrial action; and

e.     to deductions or demands for payment in response to a court or tribunal order requiring the payment of the amount in question by the worker to the employer.

§  Although Part II of the Employment Rights Act allows that inadvertent overpayments of wages or salary may be recouped from an employee's pay packet without the prior written authority of that employee, doing so could give rise to problems under the common law unless the employee in such a situation is forewarned that any overpayments will be recouped and is afforded an opportunity to discuss alternative means of repaying the amount overpaid. Employers should make it clear to their employees (by whatever means) that overpayments of wages or salary, advances on pay, loans (and the like), will be recouped – either by a single deduction on the next available payday or (if this is likely to cause hardship) by a series of deductions over an agreed sequence of paydays. In other words, the employee in such a situation should be given an opportunity to talk the matter over with his (or her) employer before the latter acts to recover the amount overpaid.

Meaning of wages or salary

§  The expression wages (or salary or pay) in this context includes any and all bonuses, commissions, fees, holiday pay, sick pay (including statutory sick pay) and other contractual emoluments paid (or payable) to an employee. It also includes statutory maternity pay, guarantee payments, and amounts ordered to be paid by an employment tribunal in respect of a breach of a worker's statutory rights (or in pursuance of an order for reinstatement or re-engagement).

§  However, it does not include any payment to a worker by way of an advance or loan; any reimbursement of expenses incurred by the employee in connection with his (or her) work; any payment by way of a pension, allowance or gratuity in connection with a worker's retirement or as compensation for loss of office; any redundancy payment; or any payment to a worker otherwise than in his capacity as a worker. Also excluded are payments or benefits in kind except a 'payment' in the form of a voucher, stamp or similar document that has a fixed value expressed in monetary terms and is capable of being exchanged for money, goods or services (or for any combination of two or more of those things) (ibid. section 27).

Recovery of cash shortages from retail workers

§  Persons in retail employment (shop assistants, tellers, cashiers, bar staff, waiters and waitresses, etc) may be required under the terms of their contracts (or have already agreed in writing) to reimburse their employer for any cash shortages or stock deficiencies for which they are responsible. If there is no such term in an employee's contract (or no prior written agreement), the employer cannot lawfully deduct a sum of money from that employee's pay packet (or lawfully demand a payment from that employee) in respect of such a shortage or deficiency (ibid. sections 17 to 21).

§  Even if an employer does have the contractual right (or an employee's prior written authority) to deduct a sum of money from an employee's wages or salary in respect of a cash shortage or stock deficiency, the amount deducted must not exceed one-tenth of the gross pay due to the employee on that pay day. This means, in practice, that the employer may have to recover the full amount owed by instalments (ibid. section 18).

§  Demands for payment from an employee in respect of a cash shortage or stock deficiency must be preceded by a letter or memorandum notifying the employee of the total amount payable in respect of that cash shortage or stock deficiency and of the payday (or series of paydays) on which payment (or payment by instalments) is to be made. Second and subsequent demands for payment must also be made in writing and must be made on the pay day on which payment is required. Any demand for payment on a day other than a payday will be null and void. As with deductions from pay, the amount paid by an employee on any one pay day must not exceed one-tenth of the gross pay due to the employee on that pay day (ibid. section 18).

§  The one-tenth upper limit in respect of deductions or payments applies whatever the amount owed by the employee. If he or she is found to have been responsible for more than one cash shortage or stock deficiency, the aggregate of any deductions or payments must still not exceed one-tenth of the employee's gross wages or salary on any one pay day (ibid.).

§  If, as is sometimes the case, a worker's gross pay in respect of a particular period is determined by reference to any cash shortages or stock deficiencies occurring during that period:

a.     his (or her) true gross pay for that period will be held to be the gross amount he would have received had there been no cash shortages or stock deficiencies during that period; and

b.    the difference between those two amounts will be held to be a deduction from the employee's pay on account of those cash shortages or stock deficiencies.

In other words, it is not open to an employer to exercise his contractual right to reduce an employee's gross pay because of a cash shortage and then to deduct or demand a further 10 per cent from the employee's reduced gross pay to recover the amount in question. The total of those two amounts must not exceed 10 per cent of the employee's true gross pay as defined in (a) above (ibid.).

Example

A cashier is ordinarily paid £200 per week. However, there is a term in his contract of employment that states that his gross pay for any week will reduce by £10 if he is responsible for a cash shortage or stock deficiency during that week. If there is a cash shortage of, say, £150 (for which the cashier is responsible), the maximum amount that may be deducted from his pay packet for the week in question is £20 (ie, 10 per cent of £200). As £10 has already been deducted, the maximum additional amount that may be deducted is also £10.

§  Finally, an employer cannot legally deduct money from a worker's pay packet (or demand a payment from a worker) in respect of a cash shortage or stock deficiency if the pay day on which that deduction or payment takes place (or on which the first of a series of such payments or deductions takes place) falls after the end of the period of 12 months beginning the date when the employer found out about the shortage or deficiency (or, if earlier, the date on which he ought reasonably to have done so). In other words, an employer has 12 months within which to recover (or to begin to recover) the amount of any cash shortage or stock deficiency. If he ought to have established the existence of that shortage or deficiency much earlier than he says he did, an employment tribunal might well order him to repay any deduction made or any payment received 'out of time' (ibid. sections 18(2) and (3) and 20(2) and (3)).

Monies still owing on the termination of employment

§  Should a person in retail employment resign or be dismissed before he (or she) has repaid the full amount of any monies owed to the employer in respect of cash shortages or stock deficiencies, the employer may (in accordance with previous arrangements, but not otherwise) either deduct all or part of the amount outstanding from any final payment of wages or salary due to the employee or demand repayment of that outstanding amount. In the event of a refusal to pay, the employer may have to sue for recovery in the ordinary courts (ibid. section 22).

Complaints to an employment tribunal

§  A worker who considers that his employer has made an unauthorised deduction from his (or her) pay (or has demanded and received an unauthorised payment), may lodge a complaint with the Secretary to the Employment Tribunals. If a tribunal upholds his complaint, it will make a declaration to that effect and will order the employer to reimburse the full disputed amount. In certain cases, the tribunal will direct that any amount owed by an employee to his employer in respect of a cash shortage or stock deficiency is to be reduced by the amount of any unauthorised deduction or payment – in spite of the fact that the employer has already been ordered to reimburse that same amount to the employee (ibid. section 23).

§  Complaints to an employment tribunal under the 'Protection of Wages' provisions of the 1996 Act must be lodged with the Secretary to the Employment Tribunals within three months of the date on which the relevant unauthorised deduction or payment was made. It is as well to point out that (as with most other statutory rights in employment) an employee does not have to resign his (or her) job in order to enforce those rights. Indeed, if an employee is dismissed (or selected for redundancy) for asserting a statutory right (whether before an employment tribunal or otherwise), his dismissal will be automatically unfair – regardless of his age or length of service at the material time even if it later transpires that the employee was not entitled to the right he believes was infringed (ibid. section 104).

Trade union dues

§  An employer must not deduct trade union dues (ie, membership subscriptions) from a worker 's pay (in accordance with check-off arrangements previously agreed with a trade union) unless he has received written authorisation from each of the workers concerned (per section 68, Trade Union & Labour Relations (Consolidation) Act 1992, as amended by the Deregulation (Deduction from Pay of Union Subscriptions) Order 1998).

§  If a worker writes to his (or her) employer asking him to stop deducting union dues from his wages or salary, the employer must act on that request on the worker's next pay day or (if the request was not received in time) as soon as 'reasonably practicable' after that pay day (ibid.).

Under section 68A of the 1992 Act, a worker may complain to an employment tribunal that his employer has deducted union dues from his pay in contravention of these requirements. The complaint must be presented within the period of three months beginning with the date on which the unauthorised deduction was made or (if there have been a number of such deductions) the date on which the last of those deductions was made. If the complaint is upheld, the tribunal will make a declaration to that effect and will order the employer to make restitution.