Lawful deductions from wages

Wages are classed as the sum of money paid by an employer to their employees and includes the following elements:

bonuses or commission
holiday pay
statutory payments including contractual sick pay and maternity pay
contractual payments including enhanced contractual sick pay and enhanced contractual maternity pay
luncheon vouchers, tokens or vouchers which can be exchanged for money, goods or services

Wage deductions

All deductions from wages are subject to the rules set out in the Employment Rights Act 1996. This states that deductions are only lawful when:

authorised by statute
are an agreed part of the employee's contract of employment
are with the advanced written agreement of the worker

There are some exceptions to this and even when none of the above apply an employer can still make deductions from employee wages for the following reasons:

to recover overpayment of wages or expenses
if the deduction is made as a result of statutory disciplinary proceedings
as a consequence of industrial action
as a result of computer error
due to a court order requiring the worker to pay the employer
if the deduction is made for a statutory purpose to a public authority such as the Inland Revenue
due to a contractual obligation to pay a third party such as trade union membership fees

National Insurance (NI)

As of April 6 2003 anyone of working age (between the ages of 16 and state pension age) earning more than £91.01 per week has to pay 11% of their wages for National Insurance up to a maximum of £610.00 per week. Employees earning over £91.01 per week must pay another 1% in NI contributions.

There are some exceptions to this including women who between 1948 and 1977 elected to pay the "married women's reduced rate". As of April 6 2003 they must pay 4.85% of their salary. This exception was abolished for women who first started contributing after April 1977 but those who started before this date were allowed to continue.

Income tax

Employers must deduct income tax from all employees for payment to the Inland Revenue. The level of tax that each member of staff must pay depends on personal factors such as how much they are paid and whether they are single, married or a single parent.

If an employee's salary does not exceed the minimum personal allowance they do not have to pay income tax. For the year 2004-2005 the minimum taxable allowance is £4,745 per year.

Unlawful deductions

If an employee believes that their employer has made an unlawful deduction from their wages they are entitled to bring a claim to an Employment Tribunal. A claim must be submitted within three months of the date of the deduction in question. Even if the tribunal rules in favour of the employee and orders repayment they have no powers to award interest on the money owed.