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When can an employer lawfully deduct from an employee’s wages?
If an employee carries out work, then they are generally entitled to receive wages from their employer in return. The amount of wages payable will generally be set out in the employment contract. Making deductions from the amount otherwise due can be tricky. But deductions can be lawful when made for the right reason and managed correctly.
Section 13 of the Employment Rights Act 1996 (ERA) says that employers can make deductions (up to 100%) from an employee (or worker’s) wage if:
- It’s required or authorised by statute. For example, tax, student loan repayments.
- It’s required or authorised by the employment contract. For example, pension contributions or repayment for uniform. Provided the employee has received a written copy of the term before the deduction is made.
- The employee gives their consent in writing to the deduction before it is made. For example, salary sacrifice schemes (such as childcare vouchers) or other voluntary deductions.
Section 14 ERA says you don’t need to comply with these restrictions if the deduction is due to, for example:
- Overpayment of wages: Employers are allowed to recover overpaid wages or expenses without employee consent.
- Industrial action: Employers can deduct wages for work not performed during lawful industrial action.
- Statutory authority: For example, court-ordered payments like Child Support Agency deductions or a direction from HMRC to account for tax owed.
- Payments to third parties: For example, to a pension scheme.
- Retail: Employers can deduct wages for stock damage, mistakes, or till shortages if there is a written agreement allowing for such deductions and they don’t exceed 10% of pre-tax pay, per payday, and take place within a year.
If none of the above conditions are met, the deduction is likely unlawful, and the employee could bring an employment tribunal claim for ‘unlawful deduction from wages’ (which is a ‘day one’ right).