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Employment Law Services Ltd

Deductions from Wages

The general position is that NO deductions from a worker’s wages can be made unless either;-

  1. It is required or permitted by a statutory or contractual provision, e.g. Income tax, National Insurance deductions.
  2. The worker has given his/her prior written consent to the deduction, e.g. pension contributions.

In order for an employer to be sure that a deduction falls within the second category there must be prior written consent which must precede Both the deduction itself, AND the event giving rise to the deduction.

If an employer wrongly deducts from wages it may be ordered to repay them and the employer will also lose the right to recover the sum by any other means at all. This makes it vital that employers that want the ability, at any point in the future, to recover any sum from the employee’s wages include an appropriate clause in the contract of employment.

In the event of there having been a genuine overpayment to the individual then that amount CAN be deducted without prior express approval. Naturally it would be wise to discuss it with the employee BEFORE making the deduction. “Wages” includes basic pay, any fee, bonus, commission, holiday pay and statutory sick pay. It does NOT include any payment made to the individual relating to redundancy, nor any benefits in kind. The courts have also ruled that a failure to pay wages on time can amount to a “deduction”.

Special provisions apply to deductions from wages of employees in retail employment on account of cash shortages or stock deficiencies. Not more than 1-tenth of the day’s pay to the individual can be deducted. “Retail” is defined very widely here, and includes supply of goods and services directly to members of the public. There are procedural rules on how such a deduction can be made.

 

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