As an employer you would like to believe that you had the right to deduct from wages in instances where your employee had stolen from you or had deliberately damaged or taken property.
The answer is not straight forward and surprisingly you are allowed to deduct very few things 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. Claims of this nature are on the increase so you should always seek advice and be aware of your rights before making deductions from wages.
What can I deduct?
An employer may make deductions under the following circumstances:
- it is required or allowed by law, eg National Insurance, income tax or student loan repayments
- the deduction is agreed in writing
- the contract of employment allows the deduction to be made
- a statutory payment due to a public authority or a court order has been made
- the employee has taken part in a strike or industrial action
- 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.
Furthermore, you must be careful that any deductions you do make do not reduce the employee’s wage below the minimum wage unless the deduction is for:
- tax or National Insurance
- something the employee has done and the contract of employment allows the deduction (although be warned that a retail worker has extra protection and you cannot deduct more than 10% from an employees gross wage)
- repayment of a loan or advance of wages
- repayment of an accidental overpayment of wages
- buying shares or share options in the business
Steps to take
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. We can draft bespoke contracts or clauses which cover all of these areas to ensure that any deductions cannot be challenged.
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 are experts in contract draftingand can provide you with Watertight 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.
If you need help implementing new terms, our expert HR team can provide practical internal or external support to mediate and help you recontract.
If it is too late for new contracts of employments 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 on 0114 303 2300 or email [email protected] for friendly advice and information.