What can you do if an employee owes you money?

An employee can owe their employer money for a number of reasons – for example, if an employee has taken more holiday than they are entitled to, or if they have borrowed money from their employer. Even in cases where an employee has damaged property or stock by carelessness, under the Employment Rights Act 1996, an employer cannot recover the cost of repair or replacement through a deduction from an employee’s wages. There are however limited circumstances where an employer can deduct money from an employee’s salary. We take a look at those options. ​ 

The Employment Rights Act protects individuals from having unauthorised deductions made from their wages, including complete non-payment. This protection applies both to employees and to some self-employed workers.

There are however limited circumstances where an employer can deduct money from an employee’s paycheck. These include:

• Where there is a provision in the worker’s contract permitting such a deduction
• Where the worker has given their written consent prior to the event giving rise to the deduction
• Where an employer has overpaid wages
• Where an employee takes part in a strike or industrial action
• Student loan repayments
• Where the deduction is required by statute (i.e. under PAYE and pursuant to Attachment of Earnings) – a deduction made from the employee’s salary in accordance with a court order in repayment of a debt owed.

Under the Equality Act 2010, a person has a disability if they have a physical or mental impairment that has a substantial and long-term adverse effect on their ability to carry out normal day-to-day activities. In order to be ‘long-term’, the adverse effect must have lasted (or be expected to last) for more than 12 months.

A serious mental health issue will often constitute a disability, whether it is a long-standing problem or something that has been diagnosed recently.

Some forms of mental illness, such as bipolar disorder, dementia, schizophrenia, depression obsessive-compulsive disorder and, are likely to be classed as a disability.

Stress is now one of the most common reasons for absence from work, accounting for around half of all sickness absences, but it may or may not be a disability, depending on the circumstances. 

​Under the Employment Rights Act 1996, “wages” are any sums payable to the worker by his employer in connection with his employment. This can include:

• Salary, holiday pay, bonus, commission
• Payment under statute such as sick pay, maternity or paternity pay

Wages do not include non-contractual payment in lieu of notice, advances of wages, expenses, employer’s pension contribution, compensation or redundancy payment.

​There is extra protection to those employed in retail work that make it unlawful for an employer to deduct more than 10 per cent from the gross amount of any payment of wages if the deduction is made because of cash shortages or stock deficiencies.

The key issues for employers to bear in mind when dealing with unlawful deductions from wages are that:

• ​If they attempt to recover payments due from their employees in breach of the Employment Rights Act, they risk losing the right to recover the amount in question.
• An employer should ensure that it has the employee’s written consent to make the appropriate deduction before attempting to do so. An appropriate provision in the employee’s contract of employment is always advisable

If your employee believes that they have had sums unlawfully deducted by you, then you should encourage them to first take up the issue with their manager, HR or accounts department. If this does not resolve the matter, the employee is likely to issue a grievance. You will need to then follow your internal grievance procedure. If you do not have such, then you should make sure that you follow the ACAS Code. If the issue is unable to be resolved after these steps, an employee may bring their complaint to an employment tribunal. Subject to the rules on early conciliation, a claim must be brought within three months beginning with the date of payment of the wages from which the deduction was made. The Employment Tribunal can only consider deductions from wages where the wages from which the deduction was made were paid within the previous two years before the worker brought their complaint in an Employment Tribunal.

If an employee believes sums have been deducted from their wages unlawfully, they can bring their claim at an Employment Tribunal. The employer may be ordered by the Tribunal to:

• Repay the sum unlawfully deducted – The amount will be liable to deductions for income tax and national insurance contributions.
• Compensate the employee for further financial loss

​ If, as an employer, you are looking to make any deductions from an employee’s salary, you should carefully check their contract of employment to ensure that it contains a provision permitting you to do so. If your employment contract omits such a clause, you may wish to consider updating your contracts to bring it in line with the Employment Rights Act.

MORE INFORMATION 

At Pinney Talfourd, we would be happy for you to forward to us your company’s employment contracts if you are unsure of whether they are in line with the requirements of the Employment Rights Act and we can advise you for accordingly. We have an experienced and dedicated team of specialist employment lawyers based in offices across Essex and London who have advised employers upon how to best tackle mental health issues at work.

We have late night and Saturday appointments available and offer a free initial telephone consultation for all new employment law enquiries. You can book your free initial employment consultation using our online booking form or by calling your local office. This telephone appointment will allow you to explain the situation with an expert lawyer and discuss the best steps to minimise stress and delays.

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The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.