One of the most frequent issues we come across is when an employer unexpectedly deducts money from an employee’s pay. However, the law on the protection of wages is more complicated than many employers realise. This can result in the employer having to pay the money back, or in worse cases having to face an Employment Law tribunal.
Many employers can get caught in a flurry of needless mistakes when it comes to wages and pay. At Jefferies, our Employment Law specialists are able to advise employers on how to avoid these pay blunders to protect themselves in the future. Read on for our guidance on the laws around deducting wages and how we can help.
What are some common reasons that employers want to take pay from employees?
There are various reasons why employers may look to deduct money from an employee’s pay or wages. This is usually due to employers believing that they are ‘owed it’ from the worker. Some common reasons that are sometimes thought as legitimate include:
- If an employee does not show up to work, or is continuously late, or takes unauthorised absences
- A worker takes part in an unauthorised strike or industrial action
- An employee makes a mistake which may have costed the company
- A worker undertakes costly training but leaves the company shortly after they’ve completed it
In any of these circumstances, deducting from pay must always be backed up by law or a contract agreement. Employers have responsibilities adhering to employee wellbeing and must follow particular protocol in order to have the legal legitimacy to deduct pay. For instance, ‘docking pay’ – due to reasons such as time off or lateness – is actually a very complex area of the law that needs careful consideration. There should be disciplinary procedures and warnings involved before making any financial cut.
What about employee cash shortages and stock deficiencies?
If your business is in retail, it is worth noting there are additional provisions applied to protect retail workers against deductions. No single deduction can exceed one-tenth of the worker’s pay during a given month. This limit does not apply, however, to the final contractual payment once the worker leaves.
You must also be careful when accusing an employee of causing cash shortages or stock deficiencies. An employer could be in trouble if they deduct wages without any evidence or agreement to do so. If you are an employer in a business and believe an employee has caused cash shortages or stock deficiencies, we urge you to speak with our team to discuss next steps.
When can an employer deduct money from an employee’s pay?
Employees are ultimately protected by law from employers making unauthorised deductions from their pay. The general rule of thumb is that you cannot pay an employee less than they are entitled to. This is only legitimate in circumstances that are deemed acceptable by the law, or in specific rules that have been outlined in a contract.
There are legitimate reasons for employers to deduct employee’s wages. Some of these include:
- Under requirement of law – for example National Insurance contributions, tax, or student loan repayments
- If a contract permits it – for instance a signed agreement that the employee will pay a proportion of training costs if they leave shortly after completion
- The employee agrees to the deduction before it happens in writing
- It is to correct an earlier overpayment, such as a computing error
When an employer makes a decision to deduct any pay, they must ensure this is always recorded in itemised pay statements. Since April 2019, workers and employees have been entitled to a pay statement that shows all deductions from pay.
What should an employer do if they want to deduct pay from an employee?
Whether you’re an employer or employee, it is best to have the correct contracts in place so both parties are completely aware of their rights in this type of situation from the outset. So long as it has been agreed clearly in writing that an employee will have a deduction in wages for particular circumstances, this will usually be enough to prevent any disputes from going to an Employment Law tribunal. The law will always be by your side, but a contract offers that layer extra of assurance if things are to go wrong.
When an employer has already deducted pay and an employee has taken legal action against them, a specialist Solicitor can also help to mediate the case before it goes to an Employment Law tribunal. Often these cases can spiral out of control and prove very costly to the employer, sometimes not only financially but also by reputation. At Jefferies, we have settlement agreement specialists that can nip most quarrels in the bud before they’re taken to court.
Why do I need a Solicitor to help me with my employment contracts?
In any situation, it is always best to consult with an Employment Law Solicitor to ensure you are absolutely permitted by law or contract to verify the deduction. Unfortunately, in many cases, employers will find that their contract was not actually outlined clearly from the outset. An expert Employment Law Solicitor can read employment contracts carefully and spot any errors in the details.
A law battle can be costly and also detrimental to an employer’s reputation. In consequence, taking money from an employee can prove more costly than the sum that was taken in the first place. Having an expert Employment Law Solicitor by your side can help to protect you when things go wrong, and can also troubleshoot future issues before they arise!
Get in touch with Jefferies for more advice
Do you have ‘unfinished business’ with an employer or employee? For a confidential discussion about any of these issues, or any other Employment Law matter, please contact our dedicated team on employment@jefferieslaw.co.uk or call us on 01702 332 311