Deductions from Wages

First published on Friday, Jun 19, 2020

Last updated on Monday, Oct 02, 2023

From time to time, there may be occasions when you might have to make deductions from wages.

This can be confusing for your employees, so you need to handle this issue with care. If you make unlawful deductions, you could face claims against you and face an employment tribunal.

As your employees have the right to complain about unfair payroll deductions, you need to understand how to approach the process.

In this guide, learn if you can deduct money from salaries, what to do if you’ve overpaid employees, and how to avoid unlawful deductions.

Can a Company Deduct Money from Your Salary?

Yes, there are occasions when you can make deduct money from an employee’s salary. Your employee must sign a consent form allowing you to deduct their wages. This has to be done prior to any deductions you make.

You can only make deductions if:

  • They are statutory deductions: This includes the likes of tax, national insurance, or repayments towards their student loan.
  • They are included in employment contracts: This must be explained beforehand, as well as providing a written version.
  • They have given consent: This is to ensure the employee agrees on the deduction amount.

For example, you can only deduct training costs from an employee’s pay if it’s agreed in their contract beforehand.

What Are Statutory Deductions?

Statutory deductions can include the following provisions:

  • Pay as you earn income tax.
  • National insurance.
  • Student loans.
  • Workplace pensions.

Before the deductions to wages are made, a relevant provision must be made in writing to the employee.

A relevant provision will include the following:

  • Poor quality of work.
  • Loss or damage of company property.
  • Use of company assets including personal phone calls.

How Much Can You Deduct?

There is no fixed amount you can deduct from an employee’s wages.

But you need to ensure it doesn’t reduce their monthly pay to less than what they would’ve earned on the National Minimum Wage.

There are certain exceptions, such as:

  • Tax or National Insurance.
  • Loan repayment.
  • Overpayments.
  • Buying shares.
  • Pension contributions.
  • Contract liability, such as vehicle damage.

What If There Is an Overpayment of Wages?

If you have overpaid your employees, you have the right to claim the money back.

Your employees should inform you as soon as they’ve discovered the mistake. If the amount is small and made on a weekly or monthly basis, you can deduct the amount on the next pay day.

But if there has been a large amount paid over several months, you should agree on a fair way to resolve this issue.

A payment plan can be set up between the two parties.

How to Avoid Unlawful Deduction of Wages

If you have failed to pay your employee or paid less than they were entitled to, you could face a claim of unlawful wage deduction.

The deduction will be considered unlawful, if:

  • It isn’t legally required by the law.
  • It wasn’t authorised in their contract.
  • There wasn’t written consent given beforehand.

There are some exceptions where deductions are allowed. These include being overpaid in a previous payslip or having participated on strike.

Here, if the employee disagrees with it, they may raise a breach of contract claim to the tribunal.

This type of claim must be made within three months of the wage deduction incident.

Manage Deductions from Wages with BrightHR

It’s vital that you pay your employees the right amount. But it’s also necessary to calculate the correct deductions from their pay if there are any.

Not resolving this issue with your employee could lead to tribunal hearings and impact workforce morale.

BrightHR can help you manage salary deductions with our BrightAdvice helpline. Don’t hesitate to call us if you need any help with employees’ salaries at work.

Book a free demo today or give us a call on 0800 783 2806

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