Making deductions from wages

How your business should approach it

When salaries go out each month, there are sometimes occasions when you might have to make post-payday deductions.

This can cause a great deal of confusion for you and your workforce.

Many businesses are uncertain about how to go about the process. Particularly as employees have the right to complain about an unfair deduction of wages.

In this guide, we cover all the essential points to make sure you go about it in the right way.

Making deductions from an employee’s salary

Of course, you must make sure all of your staff members receive their full pay. But claiming some money back is possible in the right circumstances.

In the Employment Rights Act 1996 (sections 13-27), it states you mustn’t make a wage deduction—unless it’s a “relevant provision” within the employment contract.

The employee may also sign a consent form allowing you to do so, but that has to be prior to any deductions you make.

And that means if, for example, an employee makes a mistake during their working months, you’re not allowed to penalise them with a salary deduction.

A different type of example involves deducting pay for lateness. You can address their issues with ongoing lateness with a written warning or meeting, but penalising them depends on the nature of their lateness.

For example, if an employee has in their contract they work for eight hours, but turn up an hour late, then it’s not appropriate to pay them for the full shift.

Moving on, there are occasions when you can deduct wages. Three of them, to be precise (check Acas’ unlawful wage deductions for further information):

  1. Under the requirements of British law. So, that includes the likes of tax, national insurance contributions, or if the employee is making repayments towards their student loan.
  2. If it’s clarified in the employment contract. As an employer, you’ll need to explain this to the employee beforehand—as well as provide them with a written version to refer to.
  3. Prior consent. As above, you can agree with your staff member a deduction, but you’ll need to have this agreement sent to them in writing.

You can complicate matters if you overpay your employee. That counts as an exemption to the above three points.

If there’s a payroll error, then you’ll have to be open and honest about it with your employee. You can have a meeting with them to discuss options on how to pay it back.

You can also state it in writing to them. You don’t need a staff member’s consent to deduct the wages, but it’s a good idea to speak with them to avoid any disputes.

In this situation, the employee can’t bring a claim into the employment tribunal, as the provisions of the Employment Rights Act 1996 that protect staff from unlawful deductions from wages don’t apply to the recovery of overpayments.

If you’re wondering how you can claim the money back, a common technique is to take monthly instalments out of the staff member’s wage—that would continue until they pay the full amount back.  

It’s good business practice to take this approach. If it’s a significant amount of money, you may place your employee in financial difficulties if you expect it all back immediately.

In this instance, you’ll have to accept you make a mistake. In time, the money will return to you---but respect your employee’s situation in the process.

How to avoid unlawful deduction of wages

First of all, remember that a wage includes:

  1. Holiday pay.
  2. Commission pay.

With the above in mind, there are illegal deduction of wages you have to be aware of. If you commit any of these, it could end in a costly employment tribunal.

Examples of unauthorised deduction of wages include:

  1. Any bonuses that you don’t pay.
  2. Holiday days that aren’t taken.

There’s also the issue of salary delays. As an employer, you do need to pay staff on time and not even a day late—even when this relates to bank holidays and weekends etc.

As such, it’s essential to have adequate payroll procedures in place to avoid any issues. If you fail to pay your staff, then it can have a major knock-on effect on their morale.

And in most cases, your employee will typically approach you if they believe you owe them money. It’s common for claims about holiday pay deductions from wages, just remember that—if they’re leaving your business—they can claim pay for untaken holidays (so long as the employee accrued them).

They can make a tribunal claim for a breach of contract if they feel you aren’t resolving the issue. However, they must do that within three months of the alleged wage deduction taking place.

Wondering about deductions?

We can help you understand what you can, and can’t, claim from staff wages. Get in touch immediately for help: 0800 783 2806.


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