Deductions from Wages

What is a Wage

In a strict sense, wages are not synonymous with pay. So for purposes of clarification, let us make some specific definitions.

Wages are what your employer pays you for doing your job. Pay, on the other hand, refers to the basic amount you are entitled to which could be your hourly, daily or monthly rate.

What are the components of wages

Wages include all the compensation connected with your job such as bonuses, fees, commissions, overtime pay, holiday differentials, etc. Other payments such as Sick Pay or Maternity Pay likewise form part of this. Also included are items with fixed values which can be used as payment for goods and services or exchanged for cash. These can be items such as cash vouchers, gift certificates and the like.

Which items do not constitute a part of wages

On the other hand, some specific items do not form part of your wages. These include tips received in the course of your work. Loans and salary advances are also included in the items that do not form part of your wages. Pensions, lump sum payments for retirement are not part of wages either. And lastly, the reimbursement or payment for expenses incurred in the course of performing your job is also excluded. For example, the transportation expenses incurred by a salesman in the course of performing his duties cannot be considered part of his wages.

Deductions must be disclosed prior to then being made

All deductions must be disclosed by the employer beforehand. The reasons for the deductions must be clearly stated and within the parameters and guidelines issued by the government.

Workers are afforded a substantial amount of protection from unauthorised wage deductions through several rules and regulations. There are also specific guidelines to be followed when imposing deductions.

Government rules regarding deductions from wages

Under the law, only the following deductions are permitted:

  • deductions required by law. e.g. income tax, insurance and government loan payments

  • deductions that the employee has explicitly consented to in writing subject to certain conditions

  • deductions explicitly mentioned in the employee’s contract of employment and agreed to by the employee

  • deductions that come about as a result of the violation of any statutes and imposed through disciplinary proceedings

  • deductions for any statutory payments that are to be made to a public authority

  • deductions incurred as a result of absence from work because of employee participation in strikes and other industrial actions

  • deductions which are for the purpose of recovering excess payments of wages or expenses

  • deductions that are ordered by a court or through an Employment Tribunal decision

As an additional protection for workers, there is a rule that limits the amount of deductions that the employer is allowed to make. This rule specifically states that even with your explicit permission, deductions must not result in the reduction of your pay to levels below the standard National Minimum Wage amount.

Deduction Agreements

Deduction agreements are agreements where the employee consent to certain deductions being made from his wages. These deductions can only be imposed for agreements that were drafted beforehand.

For example, in cases where there are inventory losses during the subject employees shift, the amount of loss can only be deducted if there was a written agreement before the losses occurred which allow deductions to be made in such cases. The agreement must clearly state also the manner in which the amount to be deducted will be computed.

Retail work: Extra Protection from Deductions

Retail workers are given extra protection from deductions to their wages due to the nature of their work.  These are in addition to the protection afforded other workers.

The law which provides additional protection specifically states that the imposition of a deduction agreement which was created and agreed upon to deduct inventory shortages and losses cannot exceed 10 percent of the employee’s gross wages for that specific wage cycle.

Should the losses be in excess of 10 percent then it can be deducted on the succeeding wage cycles but can never exceed 10 percent in any cycle.

Example of Protection in a Retail Scenario

Take a scenario where we have a customer in the restaurant who failed to pay a dinner check amounting to 500 pounds.

There is a deduction agreement stating that the whole amount of the check can be deducted from the employee’s wages. This was signed upon employment so the deduction agreement is valid.

But then the employee’s gross wages for that cycle, which was, let’s say a weekly period, were only 100 pounds. The law then states that the amount that can be deducted cannot exceed 10 pounds. This is in addition to the earlier restriction that total deductions cannot be such that the wages will be below the minimum wage.

There are however some exceptions which serve to protect the employer. In the event that the employee with an outstanding obligation is about to leave the company, then the employer will then be entitled to deduct the full amount from the last pay check.

Procedure to Follow In The Event of Deductions

If you noticed that you have not been paid your full wages during a certain period, the first thing to do is to look at the pay slip as well as your employment contract.

Verify if the deductions are indeed lawful and within the parameters mentioned above.

If this is not the case, the next step would be to take it up with your employer to see if they have a reasonable explanation. The aim here is to be able to solve the problem without resorting to legal measures.

The next step would be to consult with your local union or employees association to see if they can intercede or work out a solution your behalf.

However, if after exhausting all those means and no solution has been reached then your only recourse would be to seek intervention through an Employment Tribunal to recover not only your money but also the charges you may have incurred due to non-receipt of your wages.