Making wage deductions for the cost of training

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When an employee leaves employment, you might wish to recover the cost of any external training they recently undertook. When are you legally able to recoup training costs and can you do this by making deductions from the employee’s final salary payment?

Training Investment

If you invest in external training for employees and are worried they may leave you as soon as they have completed their course or obtained their certificate or qualification, you might want to consider recovering the training costs. However, you will only be able to do so if you have reached a contractually binding agreement with the employee covering this. If you didn’t agree anything and the employee leaves a short time after the course has ended, there is nothing you can do.

Advice

Never enter into a contractual agreement that only requires the employee to repay the training costs because if they refuse to refund you, you would have to go through the civil courts to enforce it. What you need is an agreement that also enables you to deduct the costs from the employees’ wages.

Statutory Requirements

The Employment Rights Act 1996 provides that you cannot make deductions from a worker’s wage in this scenario unless either:

  • the deductions are authorised by a relevant provision of the workers contract, provided always that they have been given a written explanation of the relevant terms before the deduction is made; or
  • there have previously signified in writing their agreement or consent to the deduction.

Advice

Ask the employee to sign a written training costs agreement each time that training is approved. Make sure the agreement is signed before the training starts. This is because the employees’ consent must precede not only the deduction itself but also the training course.

You cannot make a wage deduction for time spent by manager giving internal training to an employee, as that’s not a tangible expense.

Penalty Clause

It’s legitimate for you to want the employee to continue to work for a reasonable minimum period after their training course is completed, but your contractual provision for repayment of external training costs must not act as an extravagant penalty on them out of all proportions to your loss. Penalty clauses are unenforceable ones which entitles you to make a wage deduction long after the training has been received.

Advice

Any tie in after completion of the training should be on a tapering scale, so that the longer the employee remains employed, the less they will have to pay back if they leave because the more benefit you will have gained from their new skills, knowledge or qualifications.

As a general rule, allow for a proportionate recovery over a twelve- month period, with the amount owed reducing by 1/12th for the first completed month worked after the end of the training course. Only consider a two-year tie in if, say you part funded a longer, more expensive training course, such as a three-year degree.

As well as enabling a wage deduction, where the employee leaves employment either prior to the course’s completion or within the tie -in period, also provide for a deduction if the employee voluntarily drops out of or is thrown off of the course.

Unauthorised Deductions

If you make an unauthorised deduction from wages, not only can your Employment Tribunal order you to repay the sum, but you will also lose the right to recover what you were seeking to deduct by other means, even if it was properly owed to you. The worker can additionally seek compensation for any financial loss suffered e.g. bank charges.