How to make deductions on payroll calculations 

Very little people know that there are provisions governing how you can make deductions to your employees’ pay. Historically, employment disputes concerning unfair pay cuts have ratted Sri Lankan courts. Employers have often used unfair deductions to keep their employees in order. This is why shop and office act has made provisions to make sure, if an employee is hired with the promise of a certain rate of compensation, his salary will not get reduced due to unfair deductions and retaliations inform of deductions. Let’s explore what these provisions are. As usual, the writer will use blue font extractions from the original act, allowing the reader to interpret these clauses.  

The following extractions are from Part II, Payment of remuneration of the shop and office act, Section 19.  

The act specifies that you cannot make a deduction any deductions other than what is authorised in this act. Any such deductions should be made with the consent of the employee.  

You should also keep in mind that the deductions made in one pay-cycle should not exceed a total of 60% of the total remuneration 

However, any deductions authorized by the above-mentioned acts or a decision in a court of law will remain unaffected by these clauses.  

The act also defines that any payment made to the employer or an agent of employer, out of the remuneration even after the remuneration is paid is still considered a deduction.  

Described in the above extract is what is considered an authorized deduction. Firstly, if the employee was paid in advance from his remuneration ahead of the pay date. The employer is entitled to recover such amounts from the employee’s salary.  

Another authorised deduction is when the employer pays an amount from the employee’s remuneration which was already an obligation of the employee.  

This clause also includes a third catch all phrase, for any other legal literature that prescribes on the matter or any special permission that you may have obtained. A later amendment also provided clarification as to what is meant by “(iii) any other prescribed matter.” as seen below,  

You should also make sure that the following clauses are taken into account when implementing the above deductions 

If you remember that we discussed earlier that the act allows the employer to make payments on behalf of the employee, if the employee is already obligated to do so. The act has brought an amendment to clarify this matter further.  

If you have made any payments on behalf of the employee, you have to make sure that you are collecting a receipt containing the above details from the receiving party. These receipts should then be recorded so that the employee can also inspect when need be.  

Now that we’ve discussed the instances where deductions are considered authorized and that the total deduction amount shouldn’t exceed 60% of the full remuneration of that employee, this clause explains that there is order of priority in deduction payments. Clause 20, dictates that advance payments should have the utmost priority as a deduction pay item and the other pay items will be ordered as it appears under clause 18 in the same act. (Please refer back to the deduction types) 

Understanding the Shop and Office Act provisions regarding deductions protects both employers and employees. Employers can avoid legal disputes by adhering to these guidelines and ensuring deductions are fair and authorized. Employees are assured their salaries won’t be unfairly reduced and can seek recourse if necessary.  

Remember, for a smooth and legal payroll process, it’s crucial to be familiar with authorized deductions and obtain employee consent whenever required. If you’re unsure about a specific deduction, consulting with a legal professional is always advisable. By following these regulations, employers can maintain a positive work environment and employees can be confident in receiving their fair compensation. 

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