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What deductions can I legally take from employees’ wages?

Posted by Supportis Legal Experts in HR and Employment Law

Deduction of wages is a common dispute between an employer and employee or even an ex-employee, and one that can land an employer at an Employment Tribunal if not completed correctly.

Employers risk unlawful deduction of wages claims or claims that the employer has not paid National Minimum Wage (NMW) if they have made a deduction from an employee’s wage in the wrong way.

Other than the normal reasons for deductions (such as tax and NI contributions) what can an employer legally deduct from an employee’s wages?

We’ve identified different types of deductions that an employer can make and looked at how they can make these deductions safely.

Overpayment of wages

An employer has every right to deduct any overpayments from an employee’s wages. In the case of an overpayment, as the employee has already benefited from the money in a previous wage payment the employer has the right to make deductions that takes the employee below NMW.

However, to act reasonably, it is advised that the employer should attempt agree on a payment plan with the employee to pay back what is owed, especially if the deduction would take the employee below NMW.

Court order

If there has been a court order (such as Child Support Agency payments or an Attachment of Earnings order) then an employer has the right to deduct these from an employee’s wages. In this instance, if the employer does not comply with any such deductions then they could find themselves in contempt of court.

However, it is imperative that court orders should not take an employee’s wage below NMW.

Contractual deductions

If there is a contractual clause that allows the employer to deduct money from an employee’s wages they can do so. This could be for not returning company property or other contractual benefits.

If there is no contractual clause that allows such deductions, employers and employees can come to an agreement to make deductions. It is best practice to get any such agreements in writing and ideally prior to the deductions commencing.

On occasions when an employee has missed work due to being on strike or taking industrial action, the employer is able to deduct for such activities.

Training Agreements

A training agreement should be an independent agreement that is separate from the contract of employment. Usually this will take the form of a ‘loan’, where the employer stipulates how much the employee will be liable to pay back should the employee leave within a certain time period of the training course. To be as reasonable as possible it is advised that the repayment amount should be pro-rata the longer the employee remains employed.

It is vital that the employer and employee agree these terms in advance of the employee completing the training. It is very difficult for an employer to make reasonable deductions for training if the terms are not set in advance.

Uniform

In 2018 many well-known retail operations were fined for failing to pay staff the National Minimum Wage. However, this was not because of obvious deductions that the employers had made.

As per statutory law, employers may require workers to wear specific uniforms. If the employer requires the worker to purchase specific items, such as overalls, then this should be accounted for within their wage.

Wagamamma and TGI Friday’s were caught short on this point and subsequently fined for not paying NMW. This is because they expected employees to buy particular parts of their uniform, (i.e. black jeans). It was concluded by HMRC that asking employees to buy any part of their own uniform pushed the employees below NMW in their first pay cheque.

If an employer provides a uniform, without any charge, any deductions the employer makes for ordinary wear and tear to that uniform will reduce the employee’s pay rate, potentially causing the employee to fall below NMW. However, if the worker damages the uniform, loses it or does not return it at the end of the employment, the employer can deduct this from the employee’s wage.

To avoid any confusion between employer and employee on whose responsibility it is to maintain uniforms, employers are urged to have clear uniform policies and procedures. Where necessary, paying a uniform supplement could be beneficial.

Equipment damage/replacement

Another common question we’re asked is if an employee damages company property, can this be deducted from their wages?

The employer cannot deduct the costs from the employees wage without written consent from the employee.  There also needs to be a clause in the Contract of Employment which gives the employer the authority to do so.

In the absence of a contractual clause that enables an employer to make deductions from wages, both parties can come to an agreement for the deduction to be made. It is suggested that an employer ensures they receive written authorisation from the employee to make any such deductions from their wages. This will be useful should the employee decide to take it to Tribunal for unlawful deduction from wages.

If a deduction of this nature should happen, you need to ensure that the cost must be a ‘reasonable reflection of the cost of repair’.  Meaning, the payment cannot be more than the cost of the damage to the property. Anything more could be seen as a penalty clause and will therefore not be enforceable.

Any deduction has to be reasonable, and employers need to ensure that they deal with each employee to fit their particular circumstances.  You also need to ensure that the amount that you deduct does not take the employee below National Minimum Wage.

Transparency is key

Having a clear policy in place about deductions will make any need to implement it easy for both employers and employees. It is also worth considering that if the employee has to go to any financial expense for the business, or under the order of the business, the employer should not allow the employee to fall below NMW.

If you have any concerns with employee deductions or want to change your current systems and processes, contact one of our Employment Law Advisers on 0161 603 2156 for advice or to arrange your free consultation.

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