Deductions from Final Pay

 

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Many Employers are running foul of the Wages Protection Act 1983 when it comes to making deductions to the final pay of an Employee who is believed to owe money to the Employer.

The Act prohibits the deduction of any money from the wages, including annual leave entitlements, of an Employee where that deduction has not been agreed in advance, in writing.

Section 5(1)(a) of the Act does however indicate that written consent can be evidenced by the Employees signing of the general deduction’s clause within the Employment Agreement. However, this ‘blanket’ consent should only be relied upon where the nature of the deduction is straight forward or reoccurring (i.e. a rental deduction or payment of a union fee).

When it comes to making a deduction from the Employees pay the most common scenarios that exist are; a debt owed for goods purchased, unreturned property, training fees covered under a bonding agreement, wages paid in advance or a default incurred by the Employee.

In such case the Employer should not seek to make the deduction ‘as a right’ without first consulting the Employee to advise that a specified amount (reason being stated) is proposed to be deducted from their final pay, including from any annual leave payment owing, giving the Employee the opportunity to consult on the proposed deductions.

In many cases the Employee will accept that the amount claimed is owing and will not object to the deduction being made. However, in other cases the Employee may dispute the amount of the deduction and may even withdraw any prior consent to deduct. For the Employer to then proceed with deduction could result in an unlawful deduction claim being raised.

Where the Employer elect to pay the full and final pay out there are very limited means to then seek to recover the debt, with these processes often being more expensive to implement than the actual amount of debt to be recovered. Once the Employee has the money in their hands there is little incentive for the Employee to engage with the Employer regarding the debt.

Therefore, where a debt is in dispute the Employer needs a lawful means to withhold the payment until such time as the dispute is resolved. This requires the Employment Agreement to contain a withholding provision. In such case, if the Employee continues to dispute the debt, they must remain engaged with the Employer – which often results in them ceasing such actions.

Many Employers also believe that they have a lawful right to make deductions from the final pay of an Employee who fails to provide the correct amount of resignation notice. However, Case Law is very clear in stating that an Employee is entitled to be paid for time worked – excepting where the Employer can demonstrate that they incurred additional costs as a result of the Employee’s default.

This would occur where (for example) an Employee, required to provide two (2) weeks’ notice, advises the Employer of their resignation with this being with immediate effect (i.e. not wanting to work out their notice). The Employer would be entitled to make a deduction from that Employees final pay, but only to the extent of the difference between what that Employee would have been paid had they worked out the notice period and the cost the Employer actually incurred in securing an alternative worker for that period (i.e. a higher paid worker or a temp contractor). The resigning Employee however should be advised in writing at the time of their resignation that such a deduction will be made if they elect not to work out their notice and, where possible, of additional costs to be incurred.

All Employment Agreements should therefore contain robust deductions and withholding clauses, if you are not sure if your current agreement would pass this test we are happy to review this for you on a complementary basis. 

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