What employers need to know about unlawful deduction from wages

Navigating the ins and outs of wage deductions can be a bit of a head-scratcher for employers. Understanding unlawful deduction of wages is key to staying compliant and building trust with your team. In this blog, we’ll dive into the world of wage deductions, focusing on the legal frameworks, employee protections, and what you need to know to steer clear of any unlawful deduction of wages issues.

Wages are fundamental for your employees, covering essential needs so that they can afford to live. Making sure that your team are appropriately compensated, and wages are fairly distributed is not just a legal obligation but an ethical one, reflecting the values and integrity of your business. Protecting wages helps to build trust and loyalty within your team, creating a more positive and productive work environment. This can also help to reduce staff turnover and drive long-term growth.

Employers have a legal and ethical duty when handling employee wages. We all know that making unlawful deduction of wages can not only lead to legal trouble but also harm an employer’s reputation. So, it’s super important to know the difference between lawful and unlawful deductions to stay on the right side of employment laws and regulations.

• Lawful deductions are those required by law, like taxes or national insurance contributions. Plus, anything you’ve agreed to in your employment contract, like workplace pension contributions, or other written agreements, like a training costs form.
• On the flip side, unlawful deductions happen when wages go missing without a good reason or an employee’s say-so, for example, if an employer deducts money from an employee’s wages due to a customer complaint or for lateness where the wages docked are well in excess of the time lost from lateness. These can stir up disputes and even legal action.

 

What constitutes an unlawful deduction?

Typically, an unlawful deduction happens when there’s no legal basis for withholding or when it’s done without the employee’s agreement.

This can include if wages are held back for reasons not in an employee’s contract, if their pay is cut without a conversation being had and written agreement obtained first, or if they’ve worked overtime and haven’t been paid for it. It’s important to make sure pay deductions match what’s in your team’s contracts. Any deduction not agreed upon or not mentioned in the employee’s contract or other written agreement can be challenged. So, be upfront about any pay changes and always keep your staff in the loop to avoid unlawful deduction of wages. You should also provide clear, written terms regarding any deductions made.

However, deductions can lawfully be made without the employee’s written agreement in cases of genuinely accidental or mistaken overpayment of wages.

Employers must follow the Employment Rights Act 1996, which outlines the conditions under which deductions can be made. You should also keep to the National Minimum Wage Act 1998 and National Minimum Wage Regulations 2015, which outlines the minimum wage that all employees must be paid, and the Equality Act 2010 which prevents wage discrimination.

 

Can an employer deduct wages without consent?

Did you know that there are specific times when an employer can deduct wages without asking first? These situations are limited and clearly outlined by law. These include:

Statutory deductions: These are deductions made for things like taxes or student loan repayments.

Contractual deductions: These are the ones you’ve clearly outlined in an employee’s contract or other written agreement.

Court orders: Deductions that come from a court order, making sure legal matters are sorted.

Employers need to make sure deductions are always fair and justified. If an employee thinks a deduction is not quite right, they have every right to challenge it, and as an employer, you should be prepared to evidence legality.

To avoid any disputes, make sure to give employees detailed pay statements along with clear explanations for any deductions. Being open and transparent not only builds trust but also keeps everyone in the loop and ensures compliance. You should also make sure to give your policies a regular once-over to keep them in line with current laws and let your team know about any updates.

 

Employment Rights Act 1996

The Employment Rights Act 1996, along with relevant case law and the National Minimum Wage Regulations, serve as protective measures for employees, outlining clear restrictions on when and how deductions can be made. This is to prevent unlawful deduction of wages.

The Employment Rights Act 1996 outlines conditions when deductions can be made, highlighting when an employer can withhold wages and helping you to understand when you can deduct pay from a salaried employee.

This provides a clear path for taking legal action. It’s important that employers comply with the act to avoid potential legal challenges and financial penalties.

Getting to grips with the act is also a smart move for employers, as it can help shield your business from legal disputes and keep your workplace running smoothly. Employers need to stay informed about legal requirements and make sure all wage deductions follow statutory guidelines.

Avoiding non-compliance is important to prevent costly legal disputes, fines, and damage to your business’s reputation. That’s why it’s important for employers to routinely check business practices and make sure they always align with current legal standards.

 

Need help with Employment Law compliance?

Look no further than Citation! Our team of HR Consultants & Employment Law Consultants provide personalised guidance to make sure your business always remains compliant, and your workforce stays protected. We tailor our support to meet the unique needs of your business, helping you navigate the complex challenges that your business may be facing.

We have a range of HR Services and Employment Law Services available for your business, including 24/7 HR Advice, On-Site HR Support, HR Outsourcing and more. At Citation, we can also help with your HR Documentation, assisting with the creation of Employee handbooks and Employment Contracts.

Don’t leave it to chance. Contact us today on 0161 464 7738 for a friendly consultation and discover how we can assist you at Citation.