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Pay Deductions from Wages

Employers make up worker wages with salary, bonuses, and holiday pay. So what are your rights if your employer makes pay deductions from your pay packet?

PAY DEDUCTIONS: There are 3 lawful conditions that allow an employer to make deductions from wages in the United Kingdom.

Employers can ‘lawfully’ take payments from a worker if it is either:

  • Authorised by legislation or a requirement of statute laws. Typical examples include National Insurance contributions and Income Tax.
  • Authorised according to the contract of the worker. As a rule, workers must have a written copy of the relevant terms for pay deductions. if not, they must get a written explanation of the terms before the underpayment.
  • Consented to, in a written format, before the wage shortage occurs.

Note: Certain exemptions apply to these three conditions. An employer can recover an earlier overpayment of wages or expenses paid to a worker.

UK employment rules protect employees from having unauthorised deductions taken from their wages. This also includes a complete non-payment and applies to some self-employed workers as well.

Cash Shortage Protection for Retail Workers

Extra protection applies to individuals who are employed in retail work. It relates to a pay deduction made due to cash shortages or to stock deficiencies.

It is illegal for an employer to deduct more than 10% from the gross amount of any payment of staff wages. An exception would apply to the final payment on termination of employment.

There are several options available for workers who feel they suffered an unlawful deduction from wages. The first step would be to discuss the issue with their work manager, HR, or payroll department.

Further Steps of Recourse for Losses Incurred

The next step would be to try making recourse through formal internal procedures to resolve the matter. Making a complaint to an employment tribunal should only take place if all other options fail.

Limit on a claim for an Underpayment

The Deduction from Wages (Limitation) Regulations 2014 came into force in December 2014. The law relates to making a claim for backdated deductions from worker wages for holiday pay.

It places a two (2) year cap on all claims brought about on or after the 1st of July 2015. The limit means there is a maximum two year period that such a claim can cover.

Itemised Pay Statements

An itemised pay statement is a written pay slip produced by an employer for every employee. Each worker should receive their pay statement before pay day (or at the time the salary gets paid). Pay statements must show:

  • The employee’s gross salary.
  • The net amount payable.
  • Any variable or fixed deductions.
  • The method of payment (e.g. cash or cheque).

Pay Deductions and Wage Cash Shortages in the United Kingdom