Introduction to Income Tax and NICs Deductions
Deductions
The following is a brief overview of deductions from pay.
All deductions from an employee’s pay are covered by variou s laws. In particular, the Employment Rights Act 1996 (ERA) prescribes rules for such deductions to be lawful where certain conditions are met.
3.1
Employment Rights Act 1996
3.1.1 Lawful deductions
The Employment Rights Act 1996 states that a deduction from pay is lawful if one of the following is true:
• I t is required by statute (‘statutory deduction’)
• It is authorised by the contract of employment and the employee has received a copy of the contract prior to the deduction being made (‘contractual deduction’) • In all other cases, the employee has given prior permission in writing (‘voluntary deduction’) .
Therefore, all lawful deductions from pay are either statutory, contractual or voluntary.
3.1.2 Exceptions
There are exceptions in ERA covering deductions in respect of overpayments and industrial action.
It is not sufficient for an employer to obtain agreement. A range of case law now exists to emphasise this point. For example, an agreement may state that overpayment of salary will be repaid, but unless it also states when or from what then the employer may still not be entitled to make a deduction. In this type of case an employee may leave a company owing money yet still take all their final pay.
It is always wise to obtain written authorisation in advance of such an event, ideally by including the relevant provision in the contract of employment.
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