Under the Employment Rights Act 1996, to enable employers to lawfully make deductions from wages or take payments from an employee, the deduction or payment must be:

  • required or authorised by legislation (for example, income tax or national insurance deductions)
  • authorised by the worker’s contract – provided the worker has been given a written copy of the relevant terms or a written explanation of them before it is made
  • consented to by the worker in writing before it is made.

It is therefore in the interests of the employer to ensure that the contracts they issue have the appropriate clauses to enable them to recover costs such as recoupment of external training fees, recovery of pay in respect of annual leave taken in excess of accrued entitlement on termination of employment and compensation for failure by the worker to work their notice period on termination of employment.

Some employers provide loans to their employees for a variety of matters. For employers to legally recover the money from the employees’ wages or the outstanding balance from their final salary payment, should they leave, it is essential that the employees consent is obtained prior to the loan.

There is no minimum length of service required for an employee to raise an Employment Tribunal claim for unlawful deductions.  If it is found that there has been an unlawful deduction, then not only may the sums that have been wrongfully deducted be ordered to be repaid, but the employer will lose the right to recover the sum owed, even if the sums are properly owed to the employer. There may also be other costs that the employee can recuperate such as bank charges.

If you have a loan in place with any of your employees without a signed repayment agreement or if you would like further advice on this matter, please call Practical HR on 01702 216573 or email Lisa on angela@practical-hr.co.uk