Deductions from wages – do you have the right?

Employers may want to make deductions from their employees’ wages for reasons such as overpayments, training costs, loans etc. However, there are limits to on how those deductions can be made, and when.

The general rule is that employers are not allowed to make deductions from wages, unless authorised by statute, the employee’s contract or by prior written agreement. This cannot be in general terms and must be specific to the deduction.

Failure to comply could result in employees bringing an unlawful deduction from wages claim to the Employment Tribunal. If deductions have been made unlawfully, employers will have to re-pay their employee and potentially be on the hook for consequential financial losses. e.g. bank charges or interest.

As always, there are exceptions to the rules. Employers are allowed to deduct from wages for things such as for income tax and national insurance under PAYE, overpayments of wages and expenses and for industrial action.

Employers should note that, should they make a deduction from an employee and that employee successfully complains to the Employment Tribunal that it has been deducted unlawfully, even the employee genuinely owes the money, the employer cannot then recover that by other means. This should be a warning that taking the time to ensure the deduction is being made properly could save employers time and expense in the long run and prevent them from being in a position where they miss out on that money twice.

If you need guidance on how to make deductions from employees’ wages, please reach out to one of the Employment team.