The right to be paid wages in full is a basic employment right and the circumstances in which employers can make deductions from an individual’s pay are limited.
Generally, unless the terms of the worker’s contract allow you to make the deduction, or the worker agrees in writing before making the deduction, any deduction you make to recover costs/expenses due to a mistake or negligence will be unlawful.
If you go ahead anyway, the worker can bring an employment claim to recover the amount they have been underpaid. If they feel very strongly about it, they could also resign and claim constructive dismissal, if they have two years’ service. In addition, if you wrongly make a deduction you will not be able to recover it by any other means, such as by suing the individual.
The rules around making deductions from salary are set out in the Employment Rights Act 1996. These state that employers cannot make any deduction unless:
- It is required to by law – for example, to make NI and PAYE deductions
- The worker’s contract expressly permits it
- The worker has agreed to the deduction in writing before it is made.
Any provision in your worker’s existing contract must be precisely worded and clearly set out the circumstances in which a deduction can be made. Any ambiguity in the contract terms you are relying on will be interpreted in favour of the worker – not you. For example, a clause that purports to give you the right to deduct “any sums due” is too wide and you will not be able to rely on it. Conversely, a clause, which, for example, allows you to recover losses from your worker if their work mobile phone is lost, stolen or damaged due their neglect is likely to be sufficiently clear to be enforceable.
In addition, the clause would have to be enforceable under ordinary contractual principles before you can rely on it. This means that the amount you are seeking to deduct must relate to the losses you have incurred. If it doesn’t, and instead is designed to penalise the worker, you are unlikely to be able to enforce it even if it is “crystal clear”.
If your contract does allow you to make the deduction, before you make it you must provide details of the deduction in writing to the worker and any deduction you make must not reduce their hourly wage to less than the appropriate National Minimum Wage.
There are additional restrictions that apply to retail workers. If you are looking to make deductions to recover cash or stock shortages, the maximum deduction you can make is 10% of gross pay.