Oct 28, 2013

Damage to property


Can an employer deduct from employee’s pay?


Employers cannot make unauthorised deductions from employees’ pay under the Employment Rights Act 1996. The Act however allows for certain limited situations in which deductions from pay are permissible.

Deductions from wages are permitted under the following circumstances:

  • it is required by law, such as National Insurance, income tax or student loan repayments
  • the employee agrees in writing (for example an advance or loan)
  • the contract allows for such a deduction (for example, damage to company property)
  • statutory payment due to a public authority (including court orders)
  • in case of a strike or industrial action
  • overpayment of wages

Where the employee is on the National Minimum Wage or a statutory payment, such as statutory maternity pay, statutory sick pay, etc. no deductions are permitted, even where expressly agreed. In the retail industry, where there are instances of cash shortages or stock deficiencies, employers cannot take more than 10% from the employees’ gross pay in each pay period to cover any shortfalls.

One of the common issues we come across is employers wishing to deduct from wages for damage to company property or where an employee has failed to return a company property at the time of leaving employment. Employers in such situations must ensure before making any such deductions that it is covered under the contract of employment and that it is a reasonable amount based on the actual loss suffered by the employer. They must advise the employee in question about it and carry out a thorough investigation to establish fault before making any such recovery from the employee’s wages.

Where an employee’s contract does not expressly state such deductions, the employer cannot make any deductions. In such situations, the employer must go through the company’s disciplinary procedure and agree with the employee in writing permitting the deduction.


Nitya Balaji – Human Resources