Part II of the Employment Rights Act 1996 sets out various statutory provisions that protect workers from unauthorised or unlawful deductions from their wages.
The definition of “worker” includes any individual working under a contract of employment, or any other contract, whether oral or in writing, whereby they undertake contractually to do or perform personally any work or services.
Under the 1996 Act, wages are widely defined as ‘any sums payable to the worker in connection with his/her employment’. This includes any fee, bonus, commission, holiday pay or other payment, whether contractual or conferred by statute. The following would be classed as wages:
- Pay that you are entitled to under statute, for example, statutory sick pay or statutory maternity, paternity, adoption or shared parental pay.
- Statutory payments that are paid in lieu of wages, for example, for time off to look for work, guarantee payments where the employee is normally required to work but the employer has not provided any work, time off for antenatal care or to attend antenatal appointments, or time off for carrying out trade union duties.
- Remuneration on suspension on medical and maternity grounds.
- Payments made pursuant to a reinstatement or re-engagement order.
- Payment of protective awards for failure of an employer to adhere to the minimum consultation time periods during a redundancy.
- However, specifically excluded from the definition of wages are:
- Any payment by way of an advance under an agreement for a loan or by way of an advance of wages.
- Any payment in respect of expenses incurred by the worker in carrying out his employment.
- Any payment by way of a pension, allowance or gratuity in connection with the worker’s retirement.
- Any compensation for loss of office or payment referable to the worker’s redundancy.
- Any payment to the worker otherwise than in his capacity as a worker.
What is an unlawful deduction?
An unlawful deduction of wages is where an employer has failed to pay a worker in full, or paid the worker less than they are entitled to. It is unlawful for an employer to make a deduction from wages unless:
- The deduction is required or authorised by statute, for example, income tax and national insurance deductions.
- The deduction is permitted by a relevant provision in the relevant contract of employment, provided the worker has been given a written copy of the relevant terms or a written explanation of them before any deduction is made.
- The worker has given written consent to the employer’s deduction. Again, the worker must have given consent prior to undertaking the work for which the deduction has been made.
The 1996 Act also provides for limited excepted deductions by an employer, for example, where the worker has been involved in an industrial strike or other industrial action, or has been previously overpaid.
If there has been an administrative error by the employer in assessing the gross amount of wages due, any deficiency will not be treated as an unlawful deduction under the provisions of the 1996 Act as the shortfall was unintentional. That said, the employer may still be contractually liable to reimburse the worker. Take advice on the circumstances to understand your legal position.
Note that workers in shops, bars and restaurants have additional protection against unlawful deductions, with specific rules and requirements placed on the employer, including a cap of 10% deduction of wages to cover cash shortages or stock deficiencies.
Remedies for unlawful deduction of wages
A worker may approach you informally to raise a concern about deduction of wages. This could be through discussion with their line manager, payroll or HR function.
It will be important to handle the matter fairly and reasonably to avoid potential escalation and tribunal claims.
Ensure you understand the specific grounds of the complaint and that you have all of the facts. If there has been an administrative error or misunderstanding, can it be quickly rectified.
If there has not been an error and you consider the deduction was on a lawful basis, an explanation should be provided in response to the complaint.
The employee may decide to escalate the matter and proceed with a formal grievance. You will need to follow the organisational policy in this area, working to the required timescales.
Defending a claim at the employment tribunal
Any claim to the employment tribunal for unlawful deduction of wages must be made by the employee within 3 months less one day, from the date the unlawful deduction was made or the date the wages fell due. Where there has been a series of deductions, time will run from the date of the last deduction.
Before the claim can proceed, it will be necessary to engage in early conciliation through ACAS. This is designed to help resolve workplace disputes between you and your workers without recourse to tribunal proceedings.
The employee will be required to quantify specifically the value of any deduction made.
In favour of employers, the Deduction from Wages (Limitation) Regulations 2014, places a maximum period of 2 years for workers to claim backdated holiday pay. This 2-year cap does not, however, affect claims for deductions of other types of remuneration, such as statutory sick pay, statutory maternity pay or other similar family leave payments.
If the employment tribunal upholds the claim for unlawful deduction of wages, it can order you to repay the amount unlawfully deducted.
Defending a claim for breach of contract
Unlawful deduction of wages can also result in a common law breach of contract claim.
It is possible for your organisation to be sued for breach of contract in the employment tribunal in lieu of a statutory claim for unlawful deduction of wages, but only where the employee is no longer working for you. If the employee is still employed by you, they will need to issue a claim for breach of contract through the courts.
Breach of contract claims can result where the employer owes the worker a sum of money that falls outside the statutory definition of wages or falls within one of the excepted deductions or, alternatively, the worker has missed the time limit for lodging a claim with the employment tribunal. The limitation period to issue a court claim is 6 years.
Seeking legal advice for unlawful deduction of wages
The law relating to unlawful deduction of wages can be complex and is highly specific to the case in question. Seeking legal advice from an employment law specialist can help you ensure you are meeting your duties under statute and common law, with appropriate policies and procedures in support of compliant payroll processes. Where you are facing allegations of unlawful deduction of wages, take guidance on your options to manage and defend your position.
Legal disclaimer
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing Agency for the Professional Services Sector.
