Deductions from Wages must be Detailed

There are strict rules governing how and when employers are permitted to make deductions from employees’ wages. Typically, a deduction will be permitted if:

• it is required/authorised by legislation (ie national insurance or tax);
• it is required/authorised by the employment contract; or
• the worker gave prior written consent to the deduction being made.

An exception to this is that a deduction may be made to recover an over payment of wages or expenses, as was confirmed in the recent Employment Appeal Tribunal (EAT) decision in Ridge v.HM Land Registry.

Mr Ridge was employed by HM Land Registry.  He became unwell and had significant periods of absence.  After exhausting his full sick pay entitlement, his pay would be adjusted on a monthly basis depending on when he worked. In months when the information of Mr Ridge’s absence was provided to the payroll department in time, his wages were adjusted accordingly.  In months when the information was provided late, he received his full normal salary, resulting in an over payment of wages.  This excess was then deducted from Mr Ridge’s next salary.  At the first hearing of the case, the Employment Tribunal (ET) held that these changes were ‘adjustments’, but at the appeal stage, the EAT confirmed they were deductions.

However, whilst the deduction was shown on Mr Ridge’s payslip by stating a negative amount, the EAT held that that was not sufficient to fulfil the legal requirements governing the contents of an employee’s payslip as the payslip did not identify what the deductions were. The EAT indicated that adding some explanatory words or letters would have prevented any issue.

Despite this, no compensation was awarded to Mr Ridge as the reason for the deductions had been explained to him before he commenced proceedings and the Employment Judge considered that it was only appropriate to provide a declaration regarding the deficiencies in the payslips rather than to order the payment of compensation.

This case highlights the importance of properly understanding the requirements of the legislation governing this, perhaps misconstrued as “simple”, area of employment law.

For more information please contact Martin Sinclair or Nicola Gray or call on 01224 632464.