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A Guide to Wage Deductions

The Employment Rights Act 1996 protects workers from unauthorised deductions from wages.

However, circumstances often arise where an employer needs to make a deduction from a worker’s wages. It’s therefore important for employers to know what constitutes an unlawful deduction in order to avoid any potential employment tribunal claims.


Definition of Wages


Section 27 of The Employment Rights Act 1996 (ERA) defines wages as ‘any sums payable to the worker in connection with his employment’.


In general terms, wages include:


• Salary

• Statutory payments e.g. Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay, Statutory Adoption Pay and Shared Parental Pay.

• Holiday pay

• Bonuses and commission. Note: Where bonuses are quantifiable and not discretionary.


Wage advances or payments made under a loan agreement, expenses, pension scheme payments, and redundancy payments would all be exempt from an unlawful deduction from wage claim.


Lawful Deductions from Wages


Deductions from a workers’ pay are acceptable in the following circumstances:

• It is clearly specified in the employment contract.

• A written agreement has been made e.g. a signed training agreement allowing for the deduction.

• The worker was previously overpaid, and the deduction is to recoup this overpayment.

• It’s a legal requirement such as Income Tax or a Court Order

• The worker was absent from work due to strike or industrial action.


Prior to making a deduction the employer should double check any written agreements to ensure the deduction is lawful and advise the worker that they are about to make a deduction from the workers’ pay.


Employers need to be mindful of taking a worker’s pay below the National Minimum Wage, though this is permitted in certain circumstances.


Unlawful Deductions from Wages

Some examples of unlawful deductions from wages, include:

• Failure to pay bonuses

• Failure to pay or underpayment of commission

• Failure to pay holiday pay

• Delayed payment of wages


Reclaiming Money Owed by the Worker

In most cases monetary issues can be resolved informally. If monies are owed by the worker, then the employer should approach the worker and seek their agreement for how they wish the money to be reclaimed. For example, a deduction from wages or a bank transfer.


If the worker owes a large amount to the company, the worker may agree to a payment plan rather than the worker having to pay the money back as a lump sum which could cause them financial hardship.


The ERA 1996 is very much balanced in favour of the worker, particularly as there is no required period of service required prior to bringing an employment tribunal claim.



📢If you are an employer and have concerns regarding a potential unlawful deduction of wages claim or would like further assistance in how to protect your business from any future claims, then please do not hesitate to contact one of our experienced team on 01935 411191, or email enquiries@rbhr.co.uk for a free initial consultation phone call. 📢


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