In the recent case of Ridge v HM Land Registry EAT/0098/10/DM, the Employment Appeal Tribunal ("EAT") considered whether an employer had adequately itemised deductions from an employee's payslip.
Employees' rights in respect of itemised pay statements are set out in sections 8 to 12 of the Employment Rights Act 1996 ("ERA").
Section 8(1) states, an employee has the right to be given by his employer at or before the time at which any payment of wages or salary is made to them, to be given a written itemised pay statement.
Section 8(2) outlines what the statement must contain:
1. The gross amount of the wages or salary;
2. The amounts of any variable, and any fixed, deductions from that gross amount and the purposes for which they are made;
3. The net amount of wages or salary payable; and
4. Where different parts of the net amount are paid in different ways, the amount and method of payment of each part-payment.
Section 11 ERA states that an employee can bring a tribunal claim for determination of exactly what particulars should have been included or referred to in their payslip. If the tribunal finds that their payslip does not contain adequate particulars then it may issue:
1. A declaration to that effect (section 12(3)(b), ERA); and
2. An order to pay the employee a sum "not exceeding the aggregate of the unnotified deductions so made" where an employer has made "unnotified deductions" in the 13-week period preceding the application to the tribunal (section 12(4), ERA).
An "unnotified deduction" is a deduction which has been made without explanation on an itemised payslip (section 12(5), ERA).
The Claimant, Mr Ridge, had significant periods of absence from work due to sickness, which led him to exhaust his entitlement to sick pay. Mr Ridge's continued intermittent absence from work was unpaid and therefore his entitlement to pay varied each month depending on how many days he had worked. When absences were reported and processed before the pay cut off date his gross pay was reduced accordingly. Some months his absence was not reported and processed until after the end of the month, and he was overpaid. This overpayment was recovered from his pay in the following month.
These reductions were shown on Mr Ridge's payslips by value of a minus figure; however there were no further details explaining the variation to his gross pay or whether adjustments were made in the same or following pay period. Mr Ridge issued tribunal proceedings, arguing that his employer had failed to comply with the ERA. The Employment Tribunal rejected the claim and held that Mr Ridge's variations were "adjustments" and not deductions. Mr Ridge subsequently appealed the decision, which the EAT overturned.
The EAT held that Mr Ridge's employer's recovery of overpayments from a previous month were deductions. In making their decision, the EAT distinguished between the two types of adjustments to Mr Ridge's gross total pay:
1. The adjustments to his pay for a period owing to his unpaid sickness absence were variations, not deductions, for the purposes of section 8 ERA; and
2. The minus figures set out on some of the payslips were recoveries of overpayments already declared to be salary in respect of earlier periods and, as such, constituted deductions for the purposes of section 8 ERA.
Thoughts for employers
This case highlights the importance of correctly itemising payslips even where the employee understands the basis for a deduction. If deductions such as Mr Ridge's are not identified adequately the employer may be at risk of punitive damages up to the amount that the employer has deducted.