Understanding pay and wage deductions


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When an employee is notified of unexpected pay and wage deductions, they’re bound to be confused, and let’s face it, pretty panicked!

It may mean that rent will be a struggle that month, or perhaps it’ll mean no getaway to the coast in summer. Either way, receiving surprise pay and wage deductions is never nice to see.

It could be a simple mistake, or it might mean that an employer has unlawfully deducted pay and wages. However, ultimately, there is always a way to resolve the situation.

Read on to learn what classifies as wages, what constitutes an unlawful deduction, when a company can legally deduct an employee’s wages, how to deal with overpayment, and how to challenge unlawful deductions. Strap in…

What classifies as wages?

Many people have the misconception that wages and pay are the same thing, well, fun fact of the day: they’re not! Pay refers to your monthly or hourly pay rate, however wages encompasses a lot more. This refer to everything else you’re paid in connection to your job, including:

What constitutes an unlawful deduction?

Under the Employment Rights Act 1996 (ERA), employees and workers are legally protected from being subjected to unauthorised deductions from their wages. Included within this bracket is late payments.

The following deductions are unlawful:

  • Untaken holiday pay
  • Delayed payment of wages
  • Underpayment or non-payment of commission
  • Unpaid bonuses

Can an employer lawfully deduct pay and wages without consent?

Although the ERA protects employees and workers against unlawful wage deduction, there are a number of circumstances whereby pay and wage deductions are entirely legal.

Under the ERA, there are three scenarios that permit an employer to lawfully deduct wages. This includes:

  • When it is required by law
  • Consent has been given by the employee in writing
  • It is authorised in the employee’s contract

These three scenarios cover a broad range of situations, such as:

How to navigate overpayment

If you find yourself surprised by an unexpected sum of money in your bank account, don’t immediately put this down as a stroke of luck or perhaps a little work bonus.

There is a high chance that the money was unintentionally sent to your account, and is the result of an accidental overpayment.

You may be wondering what you should do in this situation, where you stand, and what the law says. Well to begin with, don’t descend into dismay, and don’t spend that surprise money.

Sometimes employers make mistakes and overpay employees. And, while that big old chunk of money may look rather pleasing in your bank account, employers do have the legal right to take it back.

Of course if an employer has made this mistake as a one off, for example an overpayment in an employee’s weekly or monthly paycheck, repaying an overpayment is no biggie. That being said, if overpayments are part of a larger payroll issue, things may become slightly more difficult.

Although an employer does not require an employee’s consent to deduct wages due to overpayment, they should go about the situation in the most fair and flexible way possible. This may involve small repayments over a number of months.

If an employee believes that their employer is being unreasonable or unfair in their proposal for repayment, they do not have to suffer in silence. Raising this issue using the internal grievance procedure is a good way to initially address the situation. If this doesn’t work, an employee can always take the matter to civil court. However this should always be a last resort.

It becomes an entirely different situation if an employee has already left their position by the time an employer becomes aware of an overpayment. Employment contracts typically stipulate a specific procedure for this kind of situation, and often overpaid wages will transfer into civil debt, and the former employee will be invoiced for the overpayment.

However, if there are not any contractual provisions, the situation becomes a whole lot harder. But, if an employee knowingly retains monies they have no entitlement to, this is a criminal offence under the Theft Act 1968. So, be wary.

How to contest pay and wage deductions

As with most situations in the workplace, if an employee is unhappy with something, it’s always best to try and resolve the issue internally. Reaching out to the payroll or salaries department and querying the deductions is a good first step. After all, it could be an honest mistake.

If an employee is unsatisfied with the response they receive, it might be time to take things further. Getting in touch with a union representative may come in handy here. The next step will involve initiating the company’s formal grievance procedure.

After this step, if the situation remains unresolved, the final stage of complaint is launching a claim with an employment tribunal. Although, prior to this step, an employee must first reach out to Acas for early conciliation.

Additionally, the claim must be lodged within three months less one day of the date when the deduction was made. If an employee wins their case, they could recover any deductions that were made over the course of up to two years.

However, bear in mind that bringing forward a case to an employment tribunal can be a stressful process, so make sure you’re prepared.

Closing thoughts

So, if you find yourself deprived of pay or wages that you’re entitled to, or discover that you’ve been overpaid, you now know the steps that you should take to navigate the situation swiftly and successfully.

Whether it’s bringing the mistake to your employer’s attention, or pursuing the case at an employment tribunal, you are armed with the knowledge you need to confidently solve your payment issues.

Article Created By Madaline Dunn

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