Deductions from pay – what are employers allowed…and not allowed to do?
It is a commonly (and wrongly) held belief that employers are entitled to make deductions from wages, when in fact deductions can only be made for a very narrow list of items. So what are the rules? This article covers some of the basics...
It is a commonly (and wrongly) held belief that employers are entitled to make deductions from wages for, for example, damage to the employer’s property caused by the employee. In fact deductions can only be made for a very narrow list of items, of which tax and NI contributions are one, and the correction of an earlier overpayment of wages or expenses is another.
For anything else a deduction is only going to be lawful if either:
the employee’s employment contract makes it expressly clear that deductions for the proposed purpose can be made; or
if the employee’s prior agreement in writing has been obtained.
Of these two things it is far easier to write the employment contract in such a way as to permit deductions than to obtain a written agreement.
There is a standard list of things that we would include in any employment contract (and it is quite a long list) but there are also going to be some unique things to many employers, and the skill of drafting the employment contract is anticipating what these might be. Like the restrictive covenant clauses, these should not be ‘off the shelf’ and is again testament to why employment contracts should be carefully drafted for each employer.
If an employer tries to enforce a deduction without having an express right to do so it is highly likely to lose any action taken by the employee for an unauthorised deduction of wages, and if the deduction is shown to be one of a series of unauthorised deductions the resultant compensation could stretch back years, except in the case of holiday pay claims which are limited to 2 years.
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