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Can businesses make a lawful deduction from wages?

Can businesses make a lawful deduction from wages?

Businesses wishing to make a deduction from an employee’s wages can only do so if required by statute, a provision in the employment contract, or with the employee’s prior written consent.

Sometimes, employees cause a financial loss to their employer and the business will then seek to recover this money by making deductions from that employee’s wages. A frequent example of this is where the business has paid for an employee’s training course but the employee has then ended their employment within a short period of time. The business may wish to recover the cost of the training course from the employee as they have not benefited from their investment.

Generally, there are three ways in which deductions of wages can be made lawfully:

  1. If the deductions are required by law;For example PAYE and national insurance contributions.
  2. If the deduction has been required or authorised to be made by virtue of a relevant provision of the employee’s contract;The contractual provision must clarify that any deduction is to be made from the employee’s wages. The employer must also be able to demonstrate that the event justifying the deduction has occurred.
  3. If the employee has previously consented in writing to the deduction;The consent must be given before the event giving rise to the deduction, not just before the deduction itself. It is not enough to simply notify the employee that deductions will be made imminently, the employee must be aware that deductions could be made if specific conditions are satisfied.

Continuing with the training course scenario, any deductions made for the cost of the course are unlikely to be required by statute. Therefore, only the latter two methods could apply. By agreeing to a contractual provision allowing the employer to deduct wages, the employee will have authorised the deduction. However, the provision must be clear in that the deductions will be from wages. It is also advisable that such provisions be as specific as possible; for example by permitting deductions for damage caused to a vehicle while in the employee’s possession, rather than simply permitting deductions.

The third option is perhaps most suitable for this example, particularly if the training course was not part of the employee’s contract but was offered as an incentive for career progression. Here, the employer should ask the employee to sign a separate agreement stating that if the employee leaves the business within a specified time after the training course has concluded, they shall be responsible for repaying the cost of that course. Further, the agreement should expressly state that such repayment may be deducted from the employee’s wages. The agreement should be entered into before the employee attends the training course.

A separate written agreement before the event will confirm the employer’s entitlement to deduct wages.

Importantly, workers are also comparable to employees when assessing deductions of wages. Businesses should be mindful not to deduct wages from workers without having obtained signed written consent beforehand, or without relying on a specific contractual provision.

Recommendation

Businesses should check whether they are entitled to make deductions from wages. Before sending employees on training courses, employers should obtain their written consent that deductions from their wages can be made in specific situations. Additionally, if there is a risk that the employee’s duties may potentially cause loss to the employer, the contract of employment should include a provision enabling recovery of losses from the employee’s wages. An example is when the employee is required to use a company vehicle.

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Harry Taylor was a J B Montagu Scholar at Middle Temple. He was called to the Bar as a non-practicing barrister in 2014. Before joining Helix Law Harry gained commercial experience at a Tax advisory firm. Harry is currently studying for a Masters degree in Employment Law.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice. 

Tags: Employment, terms, contract, employer