CONTRACTS
OF EMPLOYMENT (PL810 Rev 6)
(continued)
Unlawful deductions from wages
The
employment legislation imposes no requirement on an employer to
pay an employee's wages at any particular time, in any particular
form or by any particular method such as cash, cheque or credit
transfer. These, like other terms and conditions of employment,
remain matters for negotiation and agreement between the parties
concerned. If certain payment arrangements have been agreed
between the parties and the employer subsequently departs from
these, then the employee may be entitled to make a breach of
contract claim - as described in the earlier sections of this
booklet - if he or she suffers a measurable financial loss as a
result.
The
legislation does however provide specific protection for
individuals against having unauthorised deductions made from their
wages (including complete non-payment of wages). This protection
extends not only to employees but also to:
- individuals
who work under a contract of service or apprenticeship or
under any other type of contract (written or otherwise) by
virtue of which they have agreed to perform work or services
personally (but not including independent contractors or
freelance agents);
- Crown
servants, including those employed by Government departments
(but not including members of the armed forces); and
- anyone
who works on board a ship registered in the United Kingdom
(but not including individuals who: work wholly outside Great
Britain; are not ordinarily resident in Great Britain; or are
employed under a crew agreement within the meaning of the
merchant shipping legislation).
Circumstances
in which deductions are lawful
One of three
conditions has to be met for an employer lawfully to make
deductions from a worker's wages or to receive payments from a
worker. These are that the deduction or payment is:
- required
or authorised by legislation (for example income tax or
national insurance contributions); or
- authorised
by the worker's contract - provided that the worker has been
given a written copy of the relevant terms or a written
explanation of them before it is made; or
- agreed to
in writing by the worker before it is made.
Circumstances
in which the protection does not apply
The
conditions set out above do not have to be met where a deduction
is made or a payment received:
- to
recover an earlier overpayment of wages or expenses by the
employer to the worker; or
- as a
result of disciplinary proceedings provided for in legislation
(for example, police disciplinary proceedings); or
- a
consequence of the worker taking part in a strike or other
industrial action; or
- to
satisfy a court order or a tribunal decision - provided in the
case of a deduction that the worker has given his or her prior
written agreement to it.
In addition,
where a deduction is made under an arrangement agreed to by the
worker in writing for the employer to pay to a third party amounts
notified by that third party, the deduction is always lawful under
the legislation on unlawful deductions if the employer deducts the
amount that has been notified.
Where a
deduction is made because of a statutory requirement on the
employer to deduct and pay over specified amounts to a statutory
authority (for example, PAYE income tax payments to the Inland
Revenue), the deduction is lawful under the legislation on
unlawful deductions - provided that the employer deducts the
amount specified by the authority. Any questions as to whether or
not the authority has correctly calculated the amount due should
be followed up with the authority itself.
The rules
governing payments by a worker to his or her employer do not apply
where the employer is receiving the money in a different capacity
(for example, on a social occasion).
Special
protection for individuals in retail work
The
legislation on unlawful deductions from wages gives individuals in
retail work special protection additional to that already
described. An individual is in retail work for the purposes of
this legislation if the work involves:
- selling
or supplying goods or services directly to members of the
public, to fellow workers or to other individuals in their
personal capacities; or
- collecting
money in connection with the sale or supply of such goods or
services.
Workers
covered by the additional special protection include:
- those who
undertake selling activities to the public or to fellow
workers not on a regular basis but on odd occasions;
- those who
collect or receive money in connection with retail
transactions with the public or fellow workers but are not
themselves involved in the sale or supply of goods or services
(for example, rent collectors and cashiers who do not serve
customers).
Workers not
covered by the additional special protection include:
- those who
sell or supply goods or services only to companies (for
example, lorry drivers or warehouse personnel who supply goods
only to other depots).
The special
protection relates to deductions or payments made because of cash
shortages or stock deficiencies, including:
- non-payments
of any bonuses to which workers become entitled if there is no
loss of stock or cash, or a loss that falls short of a certain
allowable level;
- deductions
or payments made because of dishonesty or other conduct that
results in a shortage or deficiency (regardless of whether the
amount of deduction or payment equals the value of the
shortage or deficiency).
It is
unlawful for an employer to deduct more than 10 per cent
from the gross amount of any payment of wages to a retail worker
if the deduction is made because of shortages or deficiencies.
Accordingly, where deductions can be made from a retail worker's
wage to pay for shortages or stock deficiencies (see
above), the sums owed may be recovered in instalments of no
more than 10 per cent of the worker's gross wages.
The 10 per
cent limit does not however apply to deductions from the final
payment of wages - that is, the wages due to a retail worker for
his or her final period of work or, if paid later, a payment in
lieu of notice.
A deduction
of any size from the wages of a retail worker is unlawful
if made more than twelve months after the cash shortage or stock
deficiency to which it relates was (or ought reasonably to have
been) established by the employer, unless:
- the
deduction is one in a series resulting from a particular
shortage or deficiency; and
- the first
deduction in the series was made less than twelve months after
the shortage or deficiency was (or ought reasonably to have
been) established.
The
provisions governing payments received by an employer from a
retail worker because of shortages or deficiencies are similar to
the general provisions governing deductions from wages. However,
payments received by an employer from a retail worker in these
circumstances are unlawful unless certain additional conditions
are met. These conditions are:
- that the
employer must, before receiving the first payment for any
particular shortage or deficiency, let the worker know in
writing the full amount that he owes;
- that the
employer must on one of the worker's pay days make a written
demand for payment;
- that a
demand for payment (or the first in a series of demands)
relating to a particular shortage or deficiency must be made
no earlier than the first pay day after the day on which the
employer informs the worker of the full amount owed (or, if
the worker is informed on a pay day, no earlier than that
day);
- that any
such demand must not require the worker to pay more than 10
per cent of the gross amount of wages payable on that pay day;
and
- that the
payment (or payments) demanded on a pay day, added to any
deductions made on the pay day because of shortages or
deficiencies, must amount to no more 10 per cent of the gross
amount of wages payable.
A demand for
payment can be given or posted to the worker, or left at his or
her last known address, on a pay day. If the pay day is not a
working day of the employer's business, the demand may be made on
the first working day following the pay day.
If an
employer goes to court to recover money that he or she has asked a
retail worker to pay because of shortages or deficiencies, the
court must ensure that payments do not exceed instalments of 10
per cent of gross wages. This does not apply however to any
amounts paid by workers from their final payment of wages or sums
paid by them once they are no longer working for the employer.
Complaints
about unlawful deductions and payments
Any worker
who considers that he or she has suffered an unlawful deduction
from wages or been required to make an unlawful payment may seek
redress by presenting a complaint to an Employment tribunal. This
applies regardless of the worker's length of service. Such
complaints must normally be made within three months of the date
on which the wages were due to be paid (or, if that is not
reasonably practicable, within such further period as the tribunal
considers reasonably practicable). In the case of a payment by the
worker to the employer, the three months runs from the date on
which the payment was received by the employer. In the case of a
series of deductions or payments, the three months runs from the
last deduction or payment in the series. However, from 1 October
2004, with the introduction of statutory dismissal, disciplinary
and grievance procedures (see New legislation for
resolving disputes in the workplace), the normal three month
time limit will be extended by a further three months, for claims
made by employees, in specified circumstances connected with those
procedures.
Meaning
of 'wages'
Wages, for
the purposes of this legislation, are sums payable to the worker
by his or her employer in connection with his or her job. They
include:
- any fees,
bonuses, commission, holiday pay or other payments in
connection with the worker's job;
- statutory
payments such as Statutory Sick Pay and Statutory Maternity
Pay; and
- luncheon
vouchers, gift tokens and other vouchers of a fixed monetary
value that can be exchanged for money, goods or services.
Certain
other types of payment do not count as wages, and individuals have
no special protection if deductions are made from them - although
they may still be entitled to make a breach of contract claim, as
described in the earlier sections of this booklet, if the
deductions are in breach of contract. These types of payment
include:
- loans or
advances of wages;
- payments
of expenses incurred in employment;
- pension
and redundancy payments;
- lump sums
on retirement or in compensation for loss of office;
- payments
in kind, other than vouchers or tokens that can be exchanged
and are of fixed monetary value; and
- tips and
other gratuities paid directly to the worker by a third party.
Meaning
of 'deductions'
Disputes as
to whether or not the employer has correctly calculated the gross
amount of wages due are matters to be settled under the law of
contract in the civil courts or alternatively, if the employment
has ended, in the employment tribunals. However, if the employer
makes a deliberate decision not to pay some part or all of
the gross wages due under the worker's contract, then this counts
as a deduction and the worker can complain to an employment
tribunal under the legislation on unlawful deductions from wages.
Retrospective
consent to deductions from wages
An employer
might ask a worker to agree to a change in the terms of his or her
contract, or to give his or her consent, to allow for deductions
to be made on account of certain conduct. However, if the employer
makes a deduction in respect of any instances of such conduct that
took place before the contract was varied or the consent obtained,
this remains unlawful. The same principle applies to payments by
workers to employers.
For example,
an employer might obtain a worker's consent to allow for
deductions to be made on account of lateness. The employer would
then be entitled to make deductions on account of any future
incidents of lateness, but would not be entitled to make
reductions on account of any such incidents that occurred before
the worker's consent was obtained.
New legislation for resolving disputes in the
workplace
From 1 October 2004, employers and employees will generally be
required to follow a minimum three-stage process to ensure that
disputes are discussed at work. The new minimum procedures create
a framework for dealing with dismissal, disciplinary action and
grievance issues, but are not intended to replace established
effective procedures. The three steps consist of 1. a letter
outlining the problem; 2. a meeting to discuss the matter and 3.
an opportunity to appeal at a further meeting. In specified types
of case (which include claims for unlawful deductions from wages,
but not breach of contract claims), employees who have not
been able to resolve a grievance through discussion must have
completed the first step of the procedure if their case is to be
admissible to an employment tribunal. If an employee raises a
grievance in writing after the employer has undertaken step 1 of a
disciplinary procedure, the matter can be dealt with at the step 2
or 3 meeting. Where the procedure relates to dismissal, the
employee is not required to do this. However, if the grievance is
raised after step 3 of the dismissal or disciplinary procedure,
the full grievance procedure must be followed. Where an employer
or employee is found not to have fully complied with these
procedures (again, in specified types of case: these include
breach of contract, unlawful deductions and unfair dismissal
claims), employment tribunals will, subject to some exceptions,
impose financial penalties.
Detailed guidance, including information on the circumstances in
which the procedures do not apply or are treated as having been
followed, is available the DTI
website.
Further help and advice can be found on the Acas
website and by contacting
their helpline: 08457 47 47 47.
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