Myth: Employers Can Deduct Wages for Mistakes

The right to receive full wages is a fundamental employment guarantee. In the UK, employers’ powers to deduct pay are strictly limited by law and contract. Any deduction made without proper authority is unlawful and can lead to employment claims.

Legal Framework: Employment Rights Act 1996

Under the Employment Rights Act 1996, employers cannot deduct from a worker’s pay unless one of the following conditions is met:

• Required by law (for example, National Insurance or PAYE deductions)
• The employment contract expressly permits the deduction
• The worker has given written agreement before the deduction is made

Any deduction outside these grounds is unlawful. Workers can claim recovery of underpaid wages or, if they have at least two years’ service, resign and pursue a claim for constructive dismissal.

Contractual Clauses: Clarity Is Essential

To rely on a contractual deduction clause, you must ensure that:

• The clause is precisely worded and sets out clear circumstances for deductions.
• There is no ambiguity—any unclear term will be interpreted in the worker’s favor.
• The deduction amount must match actual employer losses and must not operate as a penalty.

For example, a clause allowing recovery of costs when a company mobile phone is lost due to negligence is likely enforceable if drafted clearly. Conversely, a vague clause permitting “any sums due” is too broad to rely upon.

Procedural Requirements before Making a Deduction

Even with a valid contractual right, employers must:

• Provide written notice to the worker detailing the amount and reason for the deduction.
• Ensure the deduction does not reduce pay below the National Minimum Wage.

Special Rules for Retail Workers

Retail employees are afforded additional protection. When recovering cash or stock shortages, an employer’s deduction:

• May be no more than 10% of gross pay in any pay period.

Key Takeaways

Employers should:

• Review and, if necessary, redraft contractual deduction clauses to ensure clarity.
• Obtain written consent for any deductions not already permitted by contract.
• Follow proper notice procedures and respect National Minimum Wage limits.

For more guidance on making deductions from salary and related rights, visit our in-depth article.