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.