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Wednesday, 3 October 2023

Pay deductions

Employees, workers and some other groups are protected from employers making unauthorised deductions from their pay and wages. Employers can only make a deduction in specific situations and they must follow your employment contract terms. Find out when employers can make deductions and what protection you have.

Who is protected from unauthorised pay deductions?

As well as employees and workers, protection is given to:

  • apprentices
  • people working under a contract for services
  • Crown servants
  • anyone who works onboard a ship registered in the United Kingdom - unless you work mainly outside Great Britain (GB), are not ordinarily a resident in GB or are employed under merchant shipping legislation

Pay and wages

Your wages are slightly different to your pay. Wages are the amount you are paid by your employer in connection to your job. Pay is the basic amount you should be paid (for example your monthly or hourly pay rate). Your wages could include:

  • any fees, bonuses, commission, holiday pay or other payments connected with your job
  • statutory payments (such as Statutory Sick Pay or Statutory Maternity Pay)
  • luncheon vouchers, gift tokens or other vouchers of fixed value that can be exchanged for money, goods or services

Your wages will not include:

  • loans or advances of wages
  • payments of expenses incurred in employment
  • pension and redundancy payments
  • lump sums on retirement or in compensation for loss of office
  • payments in kind (other than vouchers or tokens that can be exchanged or have a fixed value)
  • tips and other gratuities

You are protected against your employer making deductions from either your pay or wages. If your employer makes a deduction from something that does not count as your pay or wage (for example from your redundancy payment) you are not protected. However you may be able to make a claim for breach of contract if you are entitled to the payment under your employment contract.

Before making any deductions, your employer must tell you in writing the full amount you owe and make a demand for the payment. This must also be in writing.

Rules for making deductions from your pay

Your employer is not allowed to make a deduction from your pay or wages unless:

  • it is required or allowed by law, for example National Insurance, income tax or student loan repayments
  • you agree in writing to a deduction
  • your contract of employment says they can
  • it is a result of any statutory disciplinary proceedings
  • there is a statutory payment due to a public authority
  • you have not worked due to taking part in a strike or industrial action
  • it is to recover an earlier overpayment of wages or expenses
  • it is a result of a court order or Employment Tribunal decision

A deduction must not reduce your pay below the National Minimum Wage rate (except a limited amount for accommodation). This applies even if you have given your permission for it.

If you were overpaid in error, instead of making a deduction, your employer may try to recover the overpayment by making an application for a court order. For more information about how and when you might be able to prevent your employer from taking back an overpayment, you should speak to one of the following:

  • a solicitor
  • an Acas (Advisory, Conciliation and Arbitration Service) adviser
  • a Citizens Advice Bureau adviser

Agreeing to a deduction

If you have agreed in writing to a deduction then you must do this before your employer wishes to make the deduction.

For example, if you work in a restaurant and a customer leaves without paying, you must have a written, pre-standing agreement with your employer that any deductions can be made from your pay.

Your employer could ask you to sign a deductions agreement after that event, but they could not deduct any money unless it happened again. If your contract allows your employer to make wage deductions, you must have been given either:

  • a written copy of that part of the contract
  • a written explanation of it before your employer can make any deductions

Retail work: extra protection from deductions

If you work in retail (such as a shop or restaurant) you have extra protection against deductions from your wages. If there is a shortfall in the till or stock shortage, your employer is not allowed to take more than 10 per cent of your gross wages for a pay period. If the 10 per cent isn't enough then your employer can continue to take money from your wages on subsequent paydays. However never more than 10 per cent at a time.

An example

There is a shortfall of £50 in the till. Your employer wants to deduct this from your earnings. You are paid £250 per week before any deductions for tax or National Insurance etc (£250 gross pay).

Your employer can take ten per cent of your gross earnings. They must only take £25 one week and then make another deduction from your next pay cheque for £25.

If you leave your job, your employer can take the full amount owed from your final pay.

What to do if you haven't been paid in full

If you didn’t receive your full pay you should check your payslip and contract of employment to see if they explain why.

If there does not seem to be a reason why your employer has not followed the rules for making deductions from your pay, speak to your employer. See if you can sort out the problem informally. If you have an employee representative or you are a member of a trade union you could ask for their help.

If this doesn't work, you have the right to go to an Employment Tribunal to get your money. By making a breach of contract claim you can also try to reclaim any money you have lost (eg bank charges) by not receiving the money on time.

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