Did You Know That Deductions From Wages Must Be Itemised?

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An employee is entitled to receive an itemised statement of pay on, or before, their pay date which sets out their gross and net pay amounts. When it comes to the actual deductions made, what information must you provide?

An employee’s right to receive an itemised statement of pay (payslip) is set out in the Employment Rights Act 1996 (ERA). Section 8(1) of the ERA states that the employee must be given the pay statement on, or before, the point their payment of wages or salary is made to them. So, if you pay your employees on the 25th of each month they have to physically receive their payslip on or before that date, not afterwards.


The information which an itemised statement of pay must include is set out in s.8(2) of the ERA. It requires you to provide:

•             the total gross amount of the wages or salary payable to the employee

•             the amounts of any variable and/or fixed deductions from that gross amount and details of the purposes for which they are made

•             the net amount of wages or salary payable, i.e. the actual amount the employee will receive; and

•             where different parts of the net amount are paid in different ways, the amount and method of payment of each part-payment.


Whilst the ERA makes it clear that all payments and deductions must be stated on a payslip, it doesn’t indicate just how much detail an employer is expected to go into so that the employee can properly understand the difference between their gross and net pay amounts. During the case of Ridge v HM Land Registry 2014, the Employment Appeal Tribunal (EAT) looked at this particular point.


Mr Ridge (R) had experienced a long period of sickness absence which led him to exhaust his entitlement to sick pay. On his return he had further intermittent absences so his entitlement to pay varied each month depending on how many days he had worked. All reductions were shown on R’s payslips as a minus figure but there were no further details explaining what they related to.


Although the employer thought it should be obvious, R submitted a tribunal claim alleging a failure to comply with the ERA.

Initially, the tribunal rejected his claim on a technicality – it held that the variations to R’s pay were “adjustments” and not deductions. This was due to how the employer’s pay periods were calculated. However, the EAT overturned this decision and ruled that the employer had, in fact, breached the ERA rule on itemising deductions.


Tip 1. In giving its judgment, the EAT said that this employer could have complied with its legal obligations simply by providing abbreviated words next to the minus figure which explained what the deduction was for, e.g. “REC OP” for recovery of an earlier overpayment of pay.


Tip 2. An explanation is required even if the deduction is blatantly obvious, such as tax or NI payments. So make sure that whoever completes your payroll is fully aware that unidentified deductions on payslips aren’t permissible.


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Guest Wednesday, 08 December 2021