Auto Enrolment and Contract Clauses

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From January 2016, waves of firms with fewer than 30 employees will be phased into the Government’s automatic enrolment pension scheme. Throughout this process, companies will quickly realise that auto-enrolment is not just a payroll issue or something that you can pass to the Accountant, but there are significant implications throughout the business, including the ripple effect it has on the HR department and its processes.

Staff need to receive the correct communication regarding auto-enrolment and more generally, offer letters, employment contracts, policies and procedures will need to be updated in order to reflect employees’ new auto-enrolment entitlements. Something that is often overlooked by employers is the deductions clause in the employment contract; there are very limited circumstances in which an employer can lawfully make deductions from employees’ wages, as set out by the Employment Rights Act 1996. Section 13 of the Act states that deductions can only be made lawfully if (i) the deduction is required or authorised by that statute or is contained in a relevant provision of a worker’s contract of employment or (ii) the worker has previously consented in writing to the deduction. Deductions for auto-enrolment clearly fit under section (i); deductions clauses should state to employees that deductions will be made for any payment required by law.

We would expect a standard deductions clause to look something like this:

Deductions may be made for:

  • an overpayment of wages, holiday pay or expenses, whether made by mistake or otherwise;
  • any losses sustained by the company as a result of the loss of, damage to or unauthorised use of any business or client property which is caused through your carelessness, negligence, recklessness, wilful default or dishonesty;
  • the market value of any unreturned company property on the termination of employment;
  • an attachment of earnings order or any other payment required by law;

The Company will be entitled to deduct the amount of all pension contributions relating to their workplace pension scheme from any payment or final payment of wages which it may be due to make to you.

If, on the termination of your employment, your final payment of wages is not sufficient to meet any debt due to the company, you agree that you will repay the outstanding balance to the company. Any amount deducted under this clause is a genuine attempt by the company to assess its loss, and is not intended to act as a penalty.

Without a deductions clause, it would be unlawful to deduct the money out of the employees’ wages and transfer it to their pension pots. A deductions clause also means that you can deduct money from their wages for things like an overpayment in wages or damage to company property for example, so deductions clauses must not be underestimated. Ask your HR specialist to review your contracts of employment now before auto-enrolment kicks off.

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About Author

Victoria Sadler

Victoria joined Rebecca Bevins HR Consultancy as HR Officer in June 2015. Victoria started her HR career within the care sector where she gained valuable generalist HR experience and is currently studying to become CIPD qualified. Victoria is specifically interested in Employee Reward and Management Development.

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