Deductions from wages

Introduction

There is a general principle that deductions from wages, except for those relating to statutory deductions (e.g.for PAYE & NI and student loan repayments, or a court order) and the recovery of overpayments of pay or expenses, are unlawful.  This is unless deductions are specifically provided for in contracts of employment or have been agreed to in writing by the employee.  Special conditions relating to workers in the retail industry also apply and are outlined below.

Complaints about unlawful deductions and payments

Any worker who believes that he or she has suffered an unlawful deduction from wages or been required to make an unlawful payment can seek redress by presenting a complaint to an Employment Tribunal. This right applies regardless of the worker's length of service. Any such complaints must normally be made within three months of the date on which the wages were due to be paid (or, if that is not reasonably practicable, within such further period as the Tribunal considers reasonably practicable). In the case of a payment by the worker to the employer, the three months runs from the date on which the payment was received by the employer. In the case of a series of deductions or payments, the three months runs from the last deduction or payment in the series. The Deduction from Wages (Limitation) Regulations 2014 was intended to reduce how far back a worker could claim for unpaid holiday pay to which he or she may have been entitled to under the Working Time Regulations.  However, the legislation was so broadly drafted that it provides a relatively wide 'catch all' that time limits claims for other backdated 'deductions' to two years. 

Wages, for the purposes of this legislation, are sums payable to the worker by his or her employer in connection with his or her job. They include:

  • any fees, bonuses, commission, holiday pay or other payments in connection with the worker's job; 
  • statutory payments such as Statutory Sick Pay and Statutory Maternity Pay;
  • luncheon vouchers, gift tokens and other vouchers of a fixed monetary value that can be exchanged for money, goods or services. 

Certain other types of payment do not count as wages, and individuals have no special protection if deductions are made from them - although they may still be entitled to make a breach of contract claim if the deductions are in breach of contract. These types of payment 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 and are of fixed monetary value; 
  • tips and other gratuities paid directly to the worker by a third party. 

Retail workers

It is unlawful for an employer to deduct more than 10 per cent from the gross amount of any payment of wages to a retail worker, if the deduction is made because of shortages or deficiencies. Where deductions can be made from a retail worker's wage to pay for shortages or stock deficiencies, the sums owed may be recovered in instalments of no more than 10 per cent of the worker's gross wages. 

A deduction of any size from the wages of a retail worker is unlawful if made more than twelve months after the cash shortage or stock deficiency to which it relates was (or ought reasonably to have been) established by the employer, unless:

  • the deduction is one in a series resulting from a particular shortage or deficiency; and 
  • the first deduction in the series was made less than twelve months after the shortage or deficiency was (or ought reasonably to have been) established. 

Payments received by an employer from a retail worker are unlawful unless certain additional conditions are met:

  • that the employer must, before receiving the first payment for any particular shortage or deficiency, let the worker know in writing the full amount that he owes; 
  • that the employer must on one of the worker's pay days make a written demand for payment; 
  • that a demand for payment (or the first in a series of demands) relating to a particular shortage or deficiency must be made no earlier than the first pay day after the day on which the employer informs the worker of the full amount owed (or, if the worker is informed on a pay day, no earlier than that day); 
  • that any such demand must not require the worker to pay more than 10 per cent of the gross amount of wages payable on that pay day;
  • that the payment (or payments) demanded on a pay day, added to any deductions made on the pay day because of shortages or deficiencies, must amount to no more 10 per cent of the gross amount of wages payable. 

A demand for payment can be given or posted to the worker, or left at his or her last known address, on a pay day. If the pay day is not a working day of the employer's business, the demand may be made on the first working day following the pay day. If an employer goes to court to recover money that he or she has asked a retail worker to pay because of shortages or deficiencies, the court must ensure that payments do not exceed instalments of 10 per cent of gross wages. This does not apply however to any amounts paid by workers from their final payment of wages or sums paid by them once they are no longer working for the employer.