6th November 2019
Employers often get caught out by thinking that just because a worker owes them money, they can simply take it off the next pay package. The law on protection of wages is not as straight forward as many employers might assume. Sarah Everton, employment law expert with Myers & Co Solicitors in Stoke-on-Trent, goes through common pitfalls and how to ensure that you do not end up having to pay back the money to the employee.
The starting point is that you cannot pay an employee less than they are entitled to, other than in specific circumstances. Deduction is lawful where:
Problems can arise however.
Even if you are recovering an overpayment, make sure that your contract contains clauses allowing you to make a deduction in these circumstances. If not, the employee may have a breach of contract claim against you.
Make sure that the contract wording is sufficiently precise. If you are taking a risk, such as by paying for an employee’s training and you want to recover the costs if they fail or do not complete the course, we recommend entering a bespoke agreement with the employee. This should set out the specific circumstances and include the employee’s consent to deductions. We can prepare a suitable agreement for you.
If your employee does not turn up to work you may be entitled to dock pay, but the law is not totally straightforward. If you wish to dock pay for lateness or unauthorised absences, include this in the contract. If you do not pay company sick pay, employees on sick leave will not be entitled to statutory sick pay unless they meet the eligibility criteria and notifying requirements under the statutory sick pay rules. This area of law should be handled carefully.
If the error is made because the contract is imprecise, you will not be able to lawfully deduct pay to recover. If the employee has a windfall, for example because the contract says they work full time and they are paid accordingly, but they only work part time, there is no right to deduct from pay to recover the overpayment. If you discover a situation like this, we can advise you on other ways to recover.
Even if the employee wishes to sign up to deductions under a salary sacrifice scheme, such as Bike to Work or childcare vouchers, you have to ensure that they still receive the National Minimum Wage (NMW). If their pay falls below the NMW, after the deduction under the salary sacrifice scheme has been made, you will be in breach of NMW rules.
Additional provisions apply to protect retail employees against deductions made in respect of stock deficiencies or cash shortages. No single deduction can exceed one-tenth of the employee’s gross pay for that particular pay day. This limit does not apply to the final contractual payment when the employee leaves.
When deducting pay, make sure this is recorded in the itemised pay statements. Since April 2019, workers as well as employees have been entitled to a pay statement which shows deductions from pay.
Workers may be able to bring an employment tribunal claim for historical deductions from pay if these form a series of deductions, as well as claiming for a deduction within the last three months.
Deductions from wages claims can prove costly. To ensure that your contracts give you the right to make deductions and your pay arrangements comply with the law, please contact Sarah Everton in the employment law team on 01782 525012 or email email@example.com.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.