Gross deductions

Section 8 of the Employment Rights Act 1996 states that employers must provide employees with itemised pay statements setting out any deductions from gross salary and “the purposes for which they are made.” In Ridge v HM Land Registry, the Employment Appeal Tribunal (EAT) held that when employers reduce an employee’s wages or salary in order to recover an overpayment, that constitutes a deduction which they must identify and explain on the payslip.

Basic facts

Mr Ridge, a software engineer, had taken significant periods off work due to sickness. Once he exhausted his sick pay entitlement, he was only paid for the days he worked. His gross pay therefore varied on a month by month basis, depending on how many days he had worked during that month.

However, sometimes payroll were not aware of his absences as they occurred which meant he would be overpaid for that month. The overpayment was then corrected on the following month’s pay slip by means of a minus sign on the left hand side of the statement. Mr Ridge claimed that the company was required under section 8 to provide an explanation for the deductions and that he should be compensated by way of a sum equivalent to the amount of the deductions for the confusion.

Tribunal decision

The tribunal judge held that the variations in the calculation of Mr Ridge’s gross pay were not deductions as such, but adjustments made by payroll when calculating his gross pay.

On that basis, the judge concluded that the itemised payslips provided by the Land Registry complied with section 8 as they included particulars of the gross and net amount of the wages he was owed.

EAT decision

The EAT allowed Mr Ridge’s appeal, holding that the whole point of an itemised pay statement was to enable employees to see, at a glance, how the payment was made up. “In order to do so, deductions must be identified and explained. Hidden and unexplained deductions are not permitted”.

It also made clear that when employers reduce an employee’s wages or salary for a period in order to recover an overpayment for a previous period, they are making a deduction for the purposes of section 8 and must identify the amount of the deduction and why they are making it.

In this case, the Land Registry had not identified the deductions it was making from Mr Ridge’s gross salary on the left-hand side of the itemised pay statements. Although they were shown separately with a minus sign next to them, the Registry had not identified what the deductions were for. All it had to do was to include some abbreviated words to make clear that the sum represented the recovery of an overpayment, but it had failed to do so.

Although the employment judge considered that the itemised pay statements merely contained “variations” in the gross amount payable, the EAT held that the minus figures on some of the payslips were clearly recoveries of overpayments of salary in respect of earlier periods. These were deductions and their purpose should have been identified.

It therefore made a declaration to that effect, but refused to make an order that Mr Ridge should be paid the equivalent of the deductions as he clearly knew what they were for before he brought the claim.