Unlawful deduction from wages – a quick guide

Under the Employment Rights Act 1996 employees and workers are given certain rights and responsibilities relating to the protection of their pay. This post will take a look at what the rights and responsibilities of both employers and workers are relating to the payment and protection of wages.

Under the Employment Rights Act 1996 (“ERA 1996”) employers have the right to make deductions from the wages of their workers. However, this is not a blanket, unlimited right. It is unlawful for an employer to make deductions from wages unless the deduction is required or authorised by statute or a provision in the contract, or the worker has given prior written consent to the employer’s deduction. Equally, an employer acts unlawfully if they receive a payment from one of their workers unless the payment is required or authorised by statute or a provision in the contract, or the worker has given prior written consent to the payment. Your employer cannot therefore ask you to pay for unaccounted-for stock or a theft from the till unless you’ve said agreed to pay this money or such payment is required by statute or your contract with your employer.

Who’s covered?

Unlike the provisions relating to unfair dismissal (which only covers “employees”), the legislation covering the payment and protection of workers extends to the wider category of “workers”. A worker is defined as those who have entered into, or work under, a contract of employment and any other contract whereby the individual undertakes to do or perform personally any work or services for another party to the contract, whose status is not, by virtue of the contract, that of a client or customer of any profession or business undertaking carried on by the individual. An employer doesn’t normally have the same degree of control over a worker that it does over an employee, and there isn’t normally such a mutuality of obligation (i.e. the employer isn’t obliged to provide work and the worker isn’t obliged to do it).

What are wages?

Wages are also defined quite widely. They include any sums payable to the worker by their employer in connection with their employment, including any fee, bonus, holiday payment or other payment referable to the employment, whether payable under contract or otherwise, statutory sick pay, statutory maternity pay, paternity and adoption pay, guarantee pay, medical and maternity suspension pay, payments for statutory time off work, and payments made pursuant to a reinstatement or re-engagement order, interim relief order or protective award.

This can include holiday pay, shift payments, long-service awards, accrued holiday pay (unless there is an express contractual term preventing this), commission, service charges, tips (when paid by cheque or credit card), discretionary bonuses, and payments under a “gardening leave” dismissal. However, tips paid to a waiter or waitress by cash are not defined as wages for the purposes of the ERA 1996.

When is an employer allowed to deduct money from your wages?

An employer is allowed to make deductions from your wages, as above, when authorised by statute or a provision in the contract. For example, an employer can deduct from wages the PAYE and National Insurance Contributions that they are obliged to make. There may also be an express contractual term to this effect. The worker can also agree to the deduction from their wages. This consent has to be informed and can’t be retrospective.

Further, an employer is entitled to deduct money to pay a public authority (i.e. taxes), to remedy against industrial action, or to fulfil a contractual obligation to pay a third party. If there’s a computational error then the lack of wages is not counted as a deduction as such a shortfall was not intentional on the employer’s behalf. Lastly, the employer is entitled to deduct money from a worker’s wages if the worker has been overpaid.

What are your options if you have had money deducted from your wages?

You have a number of options:

  1. Do nothing
  2. Negotiate with your employer
  3. Make a claim to the Employment Tribunal to remedy the unlawful deduction from your wages

If your employer has deducted money from your wages without your consent (and not due to a contractual or statutory obligation) then you may be able to resign (should you wish to do so) and claim for constructive unfair dismissal and breach of contract. If the deduction is because of a protected characteristic that you possess (i.e. because of the colour of your skin or the fact that you’ve just returned from maternity leave) then you can also potentially claim discrimination under the Equality Act 2010.