Making Deductions From Wages

Ensure that any deductions you make from a worker’s pay are allowed under the law and are in their contract. Otherwise they may claim for breach of contract and/or unlawful deductions from wages.

Deductions are unlawful unless:

1. They are legally authorised, e.g PAYE income tax and National Insurance contributions
2. They are allowed by the worker’s contract - workers must have a copy of the relevant contractual term or a written explanation before you make the deduction
3. Workers have agreed in writing before you deduct pay for other reasons, eg as loan repayments or pension contributions

These conditions do not always have to be met, eg if you make deductions to refund an overpayment of wages, or the employee is on strike. They also do not have to be met if the deduction is to satisfy a court order, eg to recover debts. However, the worker must have agreed in advance, in writing.

Deductions from Wages of Retail Workers

If your workers do retail work, you may make deductions from wages to recover cash shortages or stock deficiencies only if, in addition to the above, you:

1. Inform the worker, in writing, of the total shortfall you are recovering before the deduction is made
2. Issue a written demand on a pay day for the repayment
3. Make the deduction - or the first in a series - no sooner than their first pay day after telling them of the shortfall or, if you tell them on a pay day, not before that day
4. Do not deduct more than one tenth of the worker’s gross pay on any given pay day - any remaining shortfall can be recovered on future pay days
5. Make the first deduction within 12 months of discovering the shortage

What Counts as Pay

The following count as pay:

1. Fees
2. Bonuses and commission
3. Holiday pay
4. Statutory payments, ie statutory sick pay, maternity, paternity and adoption pay

*If you need any more information regarding this please contact one of our HR Consultants on 0844 6800 5932.