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17 October 2014

Itemised pay statement must set out reasons for deductions

A recent case before the Employment Appeal Tribunal (EAT) is a timely reminder that the reason for an authorised deduction from pay must be recorded in the employee's pay statement, even if that reason is known by the employee.

The claimant, Mr R, was employed by HM Land Registry.  For reasons of ill-health Mr R had periods of absence from work and exhausted his entitlement to sick pay. Mr R’s absences were sometimes noted by the Land Registry too late for a reduction in his gross monthly salary. Instead, he received his normal pay which gave rise to an overpayment of wages. That overpayment was then recovered from the following month’s pay.

The payslips provided by the Land Registry in the subsequent months showed a figure with a minus sign next to it, but provided no details explaining the adjustment to Mr R’s pay. The Land Registry explained the reasons for this to Mr R but made no alteration to his payslips.

Mr R made a claim to the employment tribunal for a declaration that there had been deductions from his pay which should have been itemised on his payslips. He also sought punitive damages up to the amount of the ‘deductions’.

The tribunal held, however, that the variation in Mr R’s pay was an adjustment, not a deduction. Accordingly the tribunal found that the payslip did not need to set out any further particulars. Mr R appealed.

Decision

The EAT overturned the tribunal’s decision. The EAT held that the recovery of an overpayment of wages from the following month’s pay was clearly a deduction according with the natural meaning of ‘gross salary’. The EAT therefore held that the amount and purpose of the deduction from his pay ought to have been identified on his payslip.

Mr R’s claim for punitive damages was, however, rejected as being disproportionate given that the deductions were apparent and he has otherwise been made aware of the reason for the deduction.

The EAT also clarified that variations in pay arising from absence during a pay period are properly described as adjustments, and need not be set out in the same way as deductions.

The EAT provided some further guidance on the requirements for itemising payslips:

  • Deductions must be explained and identified.
  • Hidden and unexplained deductions are not permitted.
  • 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.

Comment

This decision from the EAT provides a useful reminder of the importance of ensuring that payslips are correctly and adequately itemised, even if the reason for a deduction is known to the employee.

Whilst in this case the EAT declined to make an award of punitive damages, employers should note that in other cases such damages have been awarded even when the employee sustained no loss.

A copy of the EAT decision is available here