How to Navigate Deductions from Wages

Navigating deductions from wages can be challenging, but understanding the legal framework and adhering to best practices can mitigate any potential issues. At RDC Solicitors, we are committed to helping both employers and employees understand their rights and responsibilities in this area. Our latest blog post aims to provide clarity on how and why deductions from wages are made, and how these issues are handled under UK employment law.

Understanding Deductions from Wages

A deduction from wages refers to any amount of money taken out of an employee’s salary by their employer. While some deductions are mandatory, others may be voluntary or arise from specific circumstances. It is essential for both employers and employees to understand the legality and rationale behind these deductions to avoid disputes and ensure lawful practices.

Types of Deductions from Wages

There are several types of deductions that can be taken from wages, including the following.

Statutory Deductions

These are mandatory deductions required by law, including Income Tax, National Insurance Contributions (NICs) and Student Loan Repayments. With regard to Income Tax, employers are required to deduct income tax from employees' wages through the Pay As You Earn (PAYE) system. Employers must also deduct NICs to fund various social security benefits and the NHS. If applicable, employers must deduct repayments for student loans from employees' wages.

Contractual Deductions

Contractual deductions are agreed upon in the employment contract, and can include

Pension Contributions and Union Fees. If the employment contract includes pension schemes, employers will deduct the agreed-upon contributions from wages. Deductions for union membership fees may also be stipulated in the contract, as well as any repayment of loans to the employee that they have agreed to being discharged by weekly/monthly instalments.

Voluntary Deductions

These are deductions that employees agree to voluntarily. With Charitable Donations, employees may choose to donate a portion of their wages to charity through payroll giving schemes. Salary Sacrifice Schemes allow employees to opt into schemes that allow for deductions in exchange for benefits such as childcare vouchers or cycle-to-work programs.

Other Deductions

There are other types of deductions too, which include those that cover specific situations. These include instances where employers can deduct money from wages to recover previous overpayments, or deductions relating to damages or losses whereby if an employee causes damage or loss to company property. Deductions can only be made, however, if stipulated in the contract and agreed upon in writing.

Legal Framework Governing Deductions

The primary legislation governing deductions from wages in the UK is the Employment Rights Act 1996 (Section 13). According to this Act, employers can only make deductions from an employee’s wages if it is required or authorised by legislation (such as PAYE and NICs), or is authorised by the employee’s contract of employment, provided the employee has received a written copy of the relevant contractual term or a written statement of it before the deduction is made. Deductions can also legally be made if the employee has given their prior written consent to the deduction.

Unlawful Deductions and Disagreements

Any deduction not meeting the above criteria may be deemed unlawful. If an employee disagrees with a deduction, the first port of call would be to raise it with their employer. If this fails, legal advice may be needed to establish whether they might be able to make a claim at an employment tribunal. Common examples of unlawful deductions include withholding wages without consent or deducting more than the agreed amount.

Whether you are an employer looking to ensure compliance or an employee facing an issue with deductions, seeking legal advice can provide clarity and support in resolving these matters effectively. At RDC Solicitors, we will always agree a costs budget with you and in certain circumstances we can conduct claims on a contingency basis.  For more advice and support with resolving workplace disputes such as deductions from wages, call us today on Bradford 01274 735511, Ilkley 01943 601173 or Bingley 01274 723858.