Under Section 13 of the Employment Rights Act 1996, employers are generally prohibited from making deductions from an employee's wages unless specific conditions are met.
When Deductions Are Lawful
- Required by statute — income tax (PAYE), National Insurance contributions, student loan repayments, court orders (e.g., attachment of earnings)
- Authorised by contract — the employment contract includes a term allowing the deduction (e.g., for overpayment recovery)
- Prior written consent — the employee has agreed in writing before the deduction is made
- Overpayment recovery — where the employer has accidentally overpaid wages or expenses
- Industrial action — deductions for periods of strike action
Retail Workers
Special rules apply to retail workers. Deductions for cash shortages or stock deficiencies must not exceed 10% of gross wages on any single pay day (though the full amount can be recovered over multiple pay periods). Demands for payment must be made within 12 months of the shortage being discovered.
Common Pitfalls
- Deductions must not reduce pay below the National Minimum Wage
- A clause in the contract allowing deductions must be clear and specific
- Consent obtained after the overpayment is not "prior" consent
- Requiring employees to purchase uniforms or equipment that reduces pay below NMW is unlawful
Remedies
An employee who believes an unlawful deduction has been made can bring a claim to an employment tribunal within 3 months of the deduction (less one day).
Need guidance on lawful deductions? Our payroll team can help. Contact us.