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THE RIGHT TO DEDUCT FROM AN EMPLOYEE’S PAY 

The Wages Protection Act 1983 sets out the way wages must be paid and prevents unlawful deductions from wages. Deductions may only be made from an employee’s pay if they are required by law, agreed to by the employee, or are for overpayments in certain circumstances. 

The deductions commonly required by law are child support payments, PAYE, court fines, student loan repayments or specific payments directed by the court. These deductions can be made without consent from the employee however, for all other deductions, an employer may only make a deduction if; the deduction is to recover an overpayment in limited circumstances, the deduction is for a lawful purpose, is reasonable and the employee has agreed to or asked for the deduction in writing.  

Nevertheless, to obtain an employee’s consent in writing for deductions may be problematic in certain instances, specifically where costs or damages need to be recovered from an employee’s final pay following their termination for serious misconduct or where an employee has resigned in an attempt to avoid being held liable for damages arising from their actions during their employment. 

A further challenge to an employer is when an employee leaves their job and does not give their employer the notice required in their employment agreement. In such instances, an employer cannot make deductions or withhold their wages or holiday pay unless the employee has given their written consent. 

Should an employer deduct money from an employee’s final pay without written consent (freely given, i.e. the employer cannot threaten or pressure the employee to agree), the employee could take an action in the Employment Relations Authority to recover the money.  

Therefore, it is pivotal for employers to obtain written consent prior to any of these situations arising. Consent, if obtained lawfully, can be applied: 

  • To recover money spent on the employee for training and/or upskilling; 
  • Relocation or immigrations costs; 
  • Damages or theft;  
  • Notice periods not worked out;  
  • Overdue staff accounts; or   
  • Legal costs that an employer has incurred in ensuring that a matter of serious misconduct resulting in the employee’s dismissal was dealt with in a procedurally fair manner, e.g. for the facilitation of the disciplinary meeting.  

The first step to ensuring that consent is lawfully obtained includes ensuring that there is a general deductions clause in the employment agreement, however, an employer must still consult with the employee before they make a specific deduction under a general deductions clause. The employee can vary or withdraw their written consent to a deduction by giving notice in writing at any time. The employer must then vary or stop the deductions within two weeks of receiving the notice.  

In a recent case in the ERA, the employee resigned without giving the required period of notice and the employer withheld money in accordance with clauses in the Employment Agreement permitting the withholding of money if the required notice period was not given. 

The Employment Relations Authority held that a general withholding clause, such as in this agreement, could be lawful but, before any deduction is made there has to be consultation with the employee and the amount of any deduction has to be reasonable.  In this case there was neither consultation, nor a reasonable deduction resulting in the employer having to return the deducted money to the employee. 

Given the inherent risks and costs associated with unlawful deductions from an employee’s pay, if you are faced with this situation or if you are unsure whether your employment agreement makes provision for lawful deductions, please feel free to contact us directly for advice.  

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