If your employee has stolen from you or deliberately damaged your property it may not be as straightforward as deducting the equivalent amount from their wages. In fact, there are very few things you are legally allowed to deduct from an employee’s wages without the risk of an unlawful deduction of wages claim.

An unlawful deduction of wages claim is brought in the Employment Tribunal and, as there are no issue fees to pay, it is free for an employee to challenge their wage, even whilst still in employment with you. You should always seek advice and be aware of your rights before making deductions from wages.

An employer can legally make deductions under very few circumstances, such as;

• It is required by law eg NI, tax or student loan repayments
• It is a statutory payment due to a public authority or court order
• It is previously agreed in writing between the employee and employer
• The contract of employment allows for the deduction to be made
• There has been an earlier overpayment of wages or expenses

This is a limited list and does not allow for deductions that have not been previously agreed or discussed. This includes incidents of theft, property damage, failure to return uniform or failure to return company equipment.

It is important to note that any deductions made do not reduce the employee’s wage below the national minimum wage! Unless;

• It is due to tax or NI
• It is the repayment of a loan or advance of wages
• It is repayment of an accidental overpayment of wages
• The employee is buying shares or share options in the business

You may also be able to make deductions below national minimum wage if the employee has done something and the contract of employment allows for the deduction, however, a retail worker, for example, has extra protections and cannot be deducted more than 10% of their gross wage.

Therefore, it is important to always take advice when considering making deductions from your employee’s wages.

What you can do

There are ways that you can ensure that your deductions are lawful and that expectations are clearly set out for your employees.

Firstly, your contracts of employment should not only contain a general deduction clause but also more specific deduction clauses to cover return of property, deductions for till shortages, damage to property, overpayments, loans, training fees and excess holiday to name a few.

Whilst an up to date contract is preferable, you can also ask your employees to sign written agreements to authorise deductions. It can be difficult to get employees to sign out of the blue but use opportunities such as when issuing new uniform, new equipment or sending an employee on a training course to obtain authorisation and agreement. If worded appropriately, then an employee will welcome an agreement to avoid any uncertainties in the employment relationship.

We can draft bespoke contracts or clauses which cover all these areas to ensure that any deductions cannot be challenged. If you need a deduction clause drafting or require advice on making deductions, then please get in touch.

We are experts in contract drafting and can provide you with clauses to ensure that you are fully in control of your business. Members of our Watertight HR & Legal package receive free bespoke contracts of employment, along with a company handbook and unlimited legal and HR advice.

What is Watertight HR & Legal?

If you need help implementing new terms, our expert HR team can provide practical internal or external support to mediate and help you re-contract.

If it is too late for new contracts of employment and conflict has arisen, then our experienced litigators can take over and ensure you receive the best advice and outcome impossible.

Contact our expert solicitors and HR advisors today for friendly advice and information.