Salary deductions

The employment law requires an employer to inform your staff of any salary deductions in advance.

In other words, your staff is entitled to know in advance what are the deductions from his/her gross salary or wage and why. Generally, most deductions are regulated under the Employment Rights Act 1996. Therefore, your employees’ contracts must clearly explain in what circumstances you can make such deductions. On the other hands, your staff may provide you with written consent to make them.

Lawful salary deductions

Some deductions are allowed under the Employment Rights Act. They are listed below.

  • Pay cut for previous over-payment of wages
  • Deductions under Pay As You Earn (PAYE) scheme provisions such as income tax and National Insurance contribution.
  • Deductions that you make by law and hand over to a third party, such as an attachment of earnings order.
  • You pay to a third party where your staff consents in writing such as payments to a pension company.
  • Pay cut relating to strike action.
  • Salary cut to satisfy a ruling by a court or tribunal that your staff has to pay you a certain amount.

Unlawful pay deductions

However, if you intend to make any deductions not shown on this list above, you would require a written consent from your staff. Ideally, you must have the consent in writing before the deductions happened. Otherwise, the deduction is considered unlawful. Even if you get consent afterward. This is because you have changed an employees’ pay without their consent. Effectively, this is in breach of contract. Unless, you have included a provision in your employment contract that in the particular circumstances you can take money out of their salary.

If you are making exactly the same fixed deductions each period, you can give out standing payment statement notifying of these deductions in advance. The standing statements may be valid for up to a year.

Your payslip must present any variable or additional deductions. And, You must notify your staff in writing of any changes to the fixed deductions.

Other important obligations

In addition to taking care of your obligation as an employer, If your business is a registered a company then you must deliver your confirmation statement and company accounts to Companies House every year.

Employee rights

Employee has the rights, whether full time or part-time working for your business entitled to the following in accordance with the Employment Law.

  • Be paid at least the national minimum wage.
  • Work no longer than the maximum weekly working hours with breaks.
  • Entitle to equal pay for equal work
  • Entitle to a minimum of four weeks paid holiday
  • Protection from discrimination
  • A safe working environment
  • Notice of termination of their employment ( after one month)
  • Be given a written statement of particulars of employment within the first eight weeks
  • Entitle to statutory sick pay and statutory maternity, paternity and adoption pay
  • Maternity, paternity and adoption leave
  • Parental leave and time off for family emergencies
  • Request flexible working arrangements
  • Protection from unfair dismissal (minimum one year of employment)
  • Redundancy pay with a minimum of two years employment

Above all, you may contact ACAS (Advisory, Conciliation and Arbitration Service) if you require more information about employment law. ACAS provides free and impartial information and advice on employer’s and employee’s rights on all aspects of workplace relations and under the employment law.

It is certainly worth paying attention to employee rights particularly if you have employees or intend to hire one. The benefits of getting on the right side of the law are worth the effort and for the good of your business. This will not only avoid financial penalties but also eliminate unwelcome publicity for your business because unfairly treated employees can make a claim against you at Employment Tribunals or under Civil law normally for compensation.

Lastly, while paying attention to employment law is important and taking care of your company legal requirements also equally important. Especially sending your confirmation statement and company accounts to Companies House on time.

Employee National Insurance (NIC)

Employee national insurance (NIC) is payable by your staff and it is your company’s responsibility as the employer to deduct your employee’s national insurance contribution from your staff salaries. Then, pay them over to HM Revenue and Customs.

For example, a staff under employment contract, you wold require to deduct Class 1 employee’s national insurance contribution from their pay. Whereas, for people working for your business as a freelancer or independent consultant, you pay them when they invoice your business. In that case you are not require to put these people in your payroll system. Thus no need to deduct any employee national insurance off their payments.

The UK national insurance contribution is administered by National Insurance Contributions Office (NICO).

National Insurance Number

Your staff must provide you, as their employer, with his/her national insurance number, if your staff does not have a national insurance number he/she should apply to their local Jobcentre Plus Office for one.

If your employee has a national insurance number but it has been lost then the person should contact HMRC.

National Insurance Contribution (NIC) Rates

HM Revenue and Customs published national insurance contribution rates and thresholds on the gov.uk website.

Other Deductions

Employers are also required to deduct income tax from your staff salaries
under the Pay As You Earn (PAYE) Scheme and pay it over to HMRC together with the employee’s and employer’s national insurance contributions.

Outsource payroll processing to your accountants

Working out income tax and national insurance contributions can be burdensome and time consuming process with the pension contribution as well. It is normally more efficient to ask your accountants to handle your payroll processing and you focus on your business.

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