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The Importance of Itemised Payslips and Deductions

Payslip DeductionsSUMMARY:  In the recent case of Ridge v HM Land Registry, the EAT confirmed the position that adjustments on a payslip are deductions and should be itemised.  Following this, we set out tips for dealing with situations where deductions from pay may be made.

Legal background

An employee has a right to an itemised pay statement.  This statement must contain:

If an employer does not comply with the requirement to notify the employee of deductions on the payslip, the employee can bring a tribunal claim and the tribunal could:

Facts of this case

In this case, the employer paid its employees on the last day of the month and each employee was given a payslip. The gross amount of pay the employee was entitled to receive was set out on the left-hand side of the payslip (as a general rule, one-twelfth of their gross annual salary, plus any allowances they were entitled to) and deductions from that amount were set out on the right-hand side.

The employee, Mr R, had significant periods of sickness absence. After exhausting his sick pay entitlement he continued to be absent from time to time.  This meant that there were months when he was entitled to be paid for some days but not others. This affected the figure for his gross pay in two ways:

Reductions to Mr R’s payslips were shown by a figure with a minus sign next to them. However, there were no further details explaining the variation to his gross total pay, whether adjustments were made in the same or following pay period.

Mr R considered that an explanation should appear on his payslips but, while it explained the purpose of the deductions, his employer did not make any changes to its payslips.

The Employment Appeal Tribunal’s (EAT’s) decision

The employment tribunal had dismissed Mr R’s claim and held that the variations to Mr R’s pay were adjustments, not deductions.

The EAT overturned the employment tribunal’s decision and held that where overpayments were recovered from a subsequent month’s gross pay, this was a deduction and the employer had failed to identify the amount and purpose of the deductions on Mr R’s payslip.  Mr R was entitled to a declaration to that effect.

The EAT suggested that some abbreviated words on Mr R’s payslip to make it clear that the sum was recovery of an overpayment would have sufficed.

The EAT also provided some helpful guidance for itemising payslips:

The EAT did not however order the employer to pay the employee the total amount of deductions as the employee claimed it should.  When making this decision, the factors the EAT took into account included the fact that the deductions were apparent on the payslip and the purpose of the deductions was explained to Mr R before he commenced proceedings.

What does this mean for employers?

This case highlights the importance of correctly itemising payments and deductions on payslips, even where the employee understands the basis for a deduction.  Employers that reduce an employee’s wages to recover an overpayment made in a previous period may be at risk of punitive damages up to the amount that they have deducted if they have not identified the deduction properly.  This is despite the employer being entitled to make the deduction and the employee understanding the reason for the deduction.

Of course, as well as ensuring the deduction is explained on the payslip, it is important to ensure that the employer is permitted to make the deduction in the first place.  Otherwise, employers could also bear the risk of employees bringing a claim for unlawful deductions from wages.  In the event of a series of deductions, the claim could go back much further than the last 13 weeks.

Here are our top 5 tips for successfully deducting sums from employees’ wages:

1. Ensure that you have the employee’s consent  for the deduction.  The usual way to obtain this is in the contract of employment.

2. Think about obtaining consent for all the types of deduction you may wish to make, as well as an overarching statement permitting deduction of monies owed by the employee to the employer.  Usual deductions include:

3. Ensure that the contract of employment, containing clauses referring to the relevant deductions, is signed by the employee before any deductions are made and that you have a copy of this on file.

4. In relation to deductions for specific (perhaps one-off) purposes, have a separate signed agreement before the event leading to the deduction occurs.  For example:

5. Ensure itemised payslips are provided on or before the payment date.

Contact Details

For more details about details to include on payslips and ensuring that you can make the appropriate deductions from wages please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice. 

Updated: by FG Solicitors
Call us on:  0808 172 93 22

THE IMPORTANCE OF ITEMISED PAYSLIPS AND DEDUCTIONS

Payslip DeductionsSUMMARY:  In the recent case of Ridge v HM Land Registry, the EAT confirmed the position that adjustments on a payslip are deductions and should be itemised.  Following this, we set out tips for dealing with situations where deductions from pay may be made.

Legal background

An employee has a right to an itemised pay statement.  This statement must contain:

  • the gross amount of the wages or salary;
  • the amounts of any variable, and any fixed, deductions from that gross amount and the purposes for which they are made;
  • the net amount of wages or salary payable; and
  • Where different parts of the net amount are paid in different ways, the amount and method of payment of each part-payment.

If an employer does not comply with the requirement to notify the employee of deductions on the payslip, the employee can bring a tribunal claim and the tribunal could:

  • issue a declaration that the payslip does not contain the required particulars; and
  • make an order to pay the employee the total amount of the deductions made in the 13 weeks before the application to the tribunal.

Facts of this case

In this case, the employer paid its employees on the last day of the month and each employee was given a payslip. The gross amount of pay the employee was entitled to receive was set out on the left-hand side of the payslip (as a general rule, one-twelfth of their gross annual salary, plus any allowances they were entitled to) and deductions from that amount were set out on the right-hand side.

The employee, Mr R, had significant periods of sickness absence. After exhausting his sick pay entitlement he continued to be absent from time to time.  This meant that there were months when he was entitled to be paid for some days but not others. This affected the figure for his gross pay in two ways:

  • where absences were reported and processed before the end of a month, the gross amount was reduced appropriately; and
  • where absences were not reported and processed before the end of the month in which they occurred Mr R was overpaid for that month. The overpayment was recovered from his following month’s gross pay.

Reductions to Mr R’s payslips were shown by a figure with a minus sign next to them. However, there were no further details explaining the variation to his gross total pay, whether adjustments were made in the same or following pay period.

Mr R considered that an explanation should appear on his payslips but, while it explained the purpose of the deductions, his employer did not make any changes to its payslips.

The Employment Appeal Tribunal’s (EAT’s) decision

The employment tribunal had dismissed Mr R’s claim and held that the variations to Mr R’s pay were adjustments, not deductions.

The EAT overturned the employment tribunal’s decision and held that where overpayments were recovered from a subsequent month’s gross pay, this was a deduction and the employer had failed to identify the amount and purpose of the deductions on Mr R’s payslip.  Mr R was entitled to a declaration to that effect.

The EAT suggested that some abbreviated words on Mr R’s payslip to make it clear that the sum was recovery of an overpayment would have sufficed.

The EAT also provided some helpful guidance for itemising payslips:

  • deductions must be identified and explained;
  • hidden and unexplained deductions are not permitted; and
  • it is enough to state gross and net salary and to identify the amount of any deductions and the purposes for which they are made; detail of detail is not required.

The EAT did not however order the employer to pay the employee the total amount of deductions as the employee claimed it should.  When making this decision, the factors the EAT took into account included the fact that the deductions were apparent on the payslip and the purpose of the deductions was explained to Mr R before he commenced proceedings.

What does this mean for employers?

This case highlights the importance of correctly itemising payments and deductions on payslips, even where the employee understands the basis for a deduction.  Employers that reduce an employee’s wages to recover an overpayment made in a previous period may be at risk of punitive damages up to the amount that they have deducted if they have not identified the deduction properly.  This is despite the employer being entitled to make the deduction and the employee understanding the reason for the deduction.

Of course, as well as ensuring the deduction is explained on the payslip, it is important to ensure that the employer is permitted to make the deduction in the first place.  Otherwise, employers could also bear the risk of employees bringing a claim for unlawful deductions from wages.  In the event of a series of deductions, the claim could go back much further than the last 13 weeks.

Here are our top 5 tips for successfully deducting sums from employees’ wages:

1. Ensure that you have the employee’s consent  for the deduction.  The usual way to obtain this is in the contract of employment.

2. Think about obtaining consent for all the types of deduction you may wish to make, as well as an overarching statement permitting deduction of monies owed by the employee to the employer.  Usual deductions include:

  • where an employee has taken more holiday than they have accrued;
  • pension contributions;
  • deductions for a float provided at the beginning of employment;
  • where an employee is paid enhanced maternity pay on condition that she returns to work for a set period after her maternity leave, but she does not do so;
  • where an employer has loaned a sum of money (for example for a season ticket loan); and
  • deductions for training costs where an employee leaves shortly after the training.

3. Ensure that the contract of employment, containing clauses referring to the relevant deductions, is signed by the employee before any deductions are made and that you have a copy of this on file.

4. In relation to deductions for specific (perhaps one-off) purposes, have a separate signed agreement before the event leading to the deduction occurs.  For example:

  • In relation to training, have a separate training agreement in relation to specific training courses if you intend to be able to claw back some or all of the training costs from employees, setting out the circumstances in which some or all of the costs may be deducted.  This must be signed in advance of the employee starting the training.
  • In relation to a season ticket loan, have a separate signed agreement before the loan is provided to the employee.
  • In relation to enhanced maternity pay, have a separate signed agreement before the employee commences maternity leave setting out the circumstances in which the employer will be entitled to deduct the enhanced payments from the employee’s wages.

5. Ensure itemised payslips are provided on or before the payment date.

Contact Details

For more details about details to include on payslips and ensuring that you can make the appropriate deductions from wages please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.