Can employers withhold sums due by an employee when they leave?
We have had a few queries recently about whether sums owed by an employee to their employer can be recovered from their final salary payment when they leave. Employment Law Solicitor, Amy Jones answers the question.
If an employee has carried out defective work which the employer has to rectify, can the employer deduct the cost of the repairs from the employee’s wages? Or, what if the employer has paid for the employee to do a course and then leaves to take up another job using the qualification the employer paid for, can that be recovered from the employee?
The answer to both of these questions is no, unless one of the following permitted reasons apply:
- A deduction is permitted if it is:
- required or authorised by statute, e.g. deductions for income tax;
- required or authorised by a provision in the employee's contract;
- in order to reimburse the employer in respect of an overpayment of wages or an overpayment in relation to expenses incurred by the employee in carrying out their employment;
- in accordance with a statutory requirement to deduct and pay over to a public authority amounts, e.g. HMRC. The deduction will be lawful as long as the employer deducts the amount specified by the authority. If the employee believes that the authority has incorrectly calculated the amount to be deducted, this is a matter between the employee and the relevant authority;
- payable to third parties, e.g. trade union dues, made either pursuant to a contractual term (to which the employee has agreed in writing) or otherwise with their prior written agreement or consent;
- from a employee's wages for taking part in a strike or other industrial action (as defined by section 14(5) of the Employment Rights Act 1996); or
- to satisfy an order of a court or tribunal for the payment of an amount by the employee to the employer, provided the employee has given their prior written consent.
- The employee has given their prior written consent to the deduction.
In the absence of one of the above reasons, the employee could bring a claim of unlawful deduction to wages against the employer and the employer would find it very difficult to defend. In addition to paying the employee the sum it deducted from their wages, the employer may also have to pay a sum that the Tribunal "considers appropriate" to compensate the employee for any financial loss sustained by him which is attributable to the deduction, e.g. bank charges or interest if the deduction causes the employee's bank account to be overdrawn. Therefore, there is scope for it to be a costly mistake.
Accordingly, it is vital that an employer ensures that it has the worker's written consent to make the appropriate deduction before attempting to do so:
- An appropriate provision in the employee's contract is always advisable, for example “The Company may deduct from the salary, or any other sums owed to the Employee, any money owed to the Company by the Employee”.
- In cases of specific deductions where, for example, the employer:
- pays enhanced maternity pay but reserves the right to recover the enhanced payment if, for example, the employee does not return to work;
- loans the employee a sum of money; or
- pays an employee’s course fees or the cost of training, but reserves the right to recover all or some of the cost if, for example, the employee does not complete or fails the course or leaves within a specified period of time,
then it is recommend that a separate agreement is entered into with the employee giving their written consent to the conditions of payment and the specific circumstances in which deductions can be made from sums due to the employee.
However, employers should ensure that any attempt to recover amounts from employees does not fall foul of other legislation. For example, in the case of Visa International v Paul, an employer sought to recover enhanced maternity payments from an ex-employee who had instituted a claim of sex discrimination against it. The EAT held that this in itself amounted to victimisation since the employer had only attempted to recoup the money after the employee had brought her claim of sex discrimination.
Amy Jones is a Senior Solicitor in Employment Law. If you have queries about employment law please contact Amy on 01382 229111 or email email@example.com