FINANCIAL INSTITUTIONS and employees love salary deductions because they offer security and ease of transactions, while finance and human resources professionals have a love-hate relationship as they can pose challenges when allowed to go unchecked.
Salary deductions fall into three categories: statutory deductions, employment deductions and voluntary deductions. Statutory deductions are those prescribed by law and include Pay As You Earn tax and National Insurance contributions.
Additionally, some persons may have court imposed deductions and once the authorisation is received the company must comply. Employers may also provide certain benefits to which employees may contribute and these are usually paid via salary deduction and may be referred to as employment deductions.
Pension plans, group health plans and staff purchase schemes are common examples of these deductions. Additionally, employers may deduct payments for damages or loss caused by negligence or wilful misconduct. Alternatively, employees may request voluntary deductions. Voluntary deductions are requests from employees to deduct a specified amount and forward to a third party.
The only piece of labour legislation governing this area is the Protection Of Wages Act Cap 351. The act is a piece of legislation which would not have envisioned our modern day society and financial structures.
The act, under section 8,allows an employer to deduct for loss caused by negligence or wilful misconduct of an employee. Section 9 states that an employer may deduct the cost of equipment requested by an employee or for money advanced or lent in anticipation of wages. Section 9(2) specifically allows a worker to assign wages, however, there is a restriction imposed. The total amount of deductions (including those assigned) should not exceed one third of an employee’s earnings.
What does this restriction mean? Where an employee receives $3 000 per month, his/her deduction should not exceed $1 000 per month.
Therefore, should this employee request his/her mortage payment of $1 500 from the salary it would be in breach of legislation. Experience has shown that most employers do not strictly adhere to this restriction in efforts to facilitate employees, and at the insistence of financial institutions they have extended the facility of staff deduction beyond the one third restriction.
Financial institutions favour salary deductions because of the security afforded in terms of receiving payments. However, there is a cost associated with their administration. Companies, whether with a large or small staff complement, have to make the deductions, consolidate and reconcile deductions from employees before paying over to the entities.
Additionally, complications occur where employees proceed on leave without pay or extended sick leave and their income is not sufficient to satisfy the deductions.
Besides enforcing the one-third limit on deductions, companies have responded in various ways to the surge in demand for salary deductions: not allowing any voluntary deductions, limiting the number of voluntary deductions from employees, for example, two per person, and creating a list of companies for which they will process deductions and restricting deductions to those companies.
While employees may complain about such policies, an employer has an interest in ensuring that employees receive money in hand at the end of the pay cycle as well as complying with legislation.
The key with salary deductions is to find a balance where employees can benefit from the deduction without placing an administrative burden on the employer.
Sheena Mayers-Granville is human resources manager, Unicomer (Barbados) Ltd.
