Paying Wages and Making Deductions
Itemised Pay Statements
Employees must be issued with an itemised pay statement at the time of payment, detailing gross pay, variable and fixed deductions and net pay. Where you, as employer, provide a standing statement of fixed deductions, it must be reissued annually.
Deductions Required by Law
As an employer, you are responsible for deducting correct tax due on a percentage of employee's earnings on a Pay as You Earn (PAYE) basis and accounting for it to HMRC. Each employee is issued with a personal tax code which may be ascertained from a P45 certificate from a previous employer or by notification from HMRC. Pending receipt of the correct personal tax code, an emergency tax code will apply. There are statutory requirements as to PAYE records which must be kept.
National Insurance Contributions (NICs) are payments calculated as a percentage of earnings due from both employer and employee in order to fund social security benefits and are payable monthly though PAYE. There are specific requirements as to the disclosure to HMRC of directors' pay requiring such pay to be allocated between earnings, pensions and compensation.
When Deductions are Permitted
Deductions from pay (including union dues and reductions in wages) may only be made:
- if authorised by the employee in the employment contract;
- if the employee has otherwise previously agreed or consented in writing to the deduction;
- or under any statutory provision requiring or authorising the deduction.
There are special provisions allowing a term in the employment contract as to deductions from wages of retail workers where there are cash shortages, of up to 10% of gross wages.