part two: 'You owe me!'

Adam Bernstein continues his look into the the pitfalls of making deductions from staff wages

Published:  02 May, 2019

By Adam Bernstein

There are countless cases on the government’s Employment Tribunal website, a number for garages, that relate to situations where employers have unlawfully deducted monies from employee’s pay packets. The rules are quite clear – employers need prior permission or a legal basis to deduct monies.
    
Andrew Rayment, a Partner in the employment department of law firm Walker Morris, says that even late payment of wages still counts as a deduction. “However,” he says, “if the employer subsequently pays the wages in full, a tribunal would not order the sum to be paid again, although it may order the employer to compensate the worker for consequential loss, such as bank overdraft charges caused by the late payment.”

How to make deductions lawfully
So, given all of the above, how can an employer make deductions from wages lawfully?
    
The first ‘permission’ Andrew notes relates to deductions required or authorised by statute. “This,” he says, “would include deductions for income tax and national insurance contributions under the PAYE system; and deductions made pursuant to the Attachment of Earnings Act 1971 (i.e. where the courts have made an attachment of earnings order).”
    
The next reason for a lawful deduction would be if it has been authorised by a provision of the worker’s contract. This means one that is set out in a written contract which has been given to the worker before the deduction was made. Here Andrew says: “The contractual provision must make it clear that the deduction may be made from the worker's wages and, obviously, the employer must also be able to demonstrate that the event justifying the deduction has occurred.”
    
It’s for this reason that employers should always make sure that their employment contracts contain a specific clause to authorise deductions from wages or other payments due to the employee in the event that the employee owes money to the company.
    
But there is a third ‘permission’ – where a worker has given prior written consent. In this instance, a deduction will not be unlawful if, as the law details, the worker has previously signified in writing his agreement or consent to the making of the deduction. On this Andrew says: “The written consent must be given before the event giving rise to the deduction (this rules out getting the worker to sign it minutes before the deduction is made) and the written consent must make it clear that the deduction may be made from the worker's wages.”
    
From a legal standpoint, it is always advisable to obtain prior written consent from the employee in cases where, for example, the employer pays enhanced maternity, paternity, shared parental or adoption pay but reserves the right to recover the enhanced payment if, for example, the employee does not return to work; loans the employee a sum of money (for example a season ticket loan); or pays an employee’s course fees or the cost of training but reserves the right to recover all or some of the cost if, for example, the employee does not complete or fails the course.
    
Going back to the case of the loan to the worker outlined in part one of this story (Aftermarket, March issue), the employer should have obtained prior written consent from the employee before loaning the money. It would then have been able to rely on this to deduct the loan from the employee’s wages.

In summary
So, to finish, except for deductions made under PAYE or under a court order, it is vital that you ensure that you have workers written consent to make a deduction from wages before attempting to do so. Similarly, ensure that there is an appropriate deduction from wages provision in your employees contracts. And where you make an enhanced payment, offer a loan or cover course fees, it is advisable, before making the payment, to require the employee to sign a form giving their written consent to the conditions of payment and the specific circumstances in which deductions can be made from sums due to the employee.
    
Planning ahead and ensuring all know where they stand will prevent much upset later on.


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