When a worker is paid, they should check their payslips for deductions. If there are deductions they were not expecting, they should raise this with their employer. It's usually best to raise the problem informally first. They can do this by talking with their employer.
This gives the employer the chance to:
- explain why a deduction has been made
- correct a mistake
When an employer can make deductions
By law (Employment Rights Act 1996), an employer can only make a deduction from someone's wages if:
- it's required by law – for example tax
- the employment contract specifically allows the deduction
- they overpaid someone by mistake
- it's something the worker agreed to in writing beforehand – for example paying a trade union subscription
- the worker missed work because they were on strike or taking industrial action
- it's a result of a court ordering the employer to make debt payments from a worker's wages to a third party
- it's a result of a court ordering a worker to make a payment to their employer – the worker must have agreed in writing that the employer can make the deduction
- the worker and employer have agreed a salary sacrifice arrangement
Deductions must be clearly stated in a worker's payslip.
Salary sacrifice arrangements
A salary sacrifice arrangement is an agreement to reduce a worker's cash pay. This is usually in return for a non-cash benefit. In this arrangement, a worker usually sacrifices part of their regular salary. A worker may also sacrifice a one-off item, such as a bonus.
Non-cash benefits that might be available through a salary sacrifice arrangement include:
- childcare vouchers
- cycle to work schemes
- workplace pension contributions
- gym memberships
- car hire or car lease schemes
- workplace nursery memberships
To set up a salary sacrifice arrangement the employer needs to change the terms of the employment contract. Both the employer and worker must agree to the change.
A salary sacrifice must not take a worker's pay below the National Minimum Wage. The employer must put limits on any agreed pay reductions to make sure this does not happen.
Salary sacrifice arrangements can affect the amount of tax and national insurance paid. To find out more about this you can contact HMRC.
Find out more about salary sacrifice for employers on GOV.UK
What to do before making deductions
Before making deductions that a worker does not expect, an employer should notify the worker as soon as possible.
Check any written agreements to see if a deduction is allowed. For example, an employer can deduct money for training costs from someone's wages if:
- it's agreed in the contract
- it's agreed in writing beforehand
A deduction for mandatory training, must not take the worker's wages below the National Minimum Wage.
What payments can have deductions
An employer can make deductions from someone's wages. This includes their:
- monthly, weekly or hourly pay
- holiday pay
- statutory payments – for example statutory sick pay (SSP) or statutory maternity pay
- bonuses or commission
An employer cannot deduct money from payments that are not part of someone's wages. This includes:
- loans – for example a pay advance for a season ticket
- expenses
- pension payments
- redundancy pay
Tips
Employers must not make deductions from:
- tips
- service charges
- gratuities that they have 'control or significant influence' over
The only exception to this is for usual tax and National Insurance deductions.
Find out more about tips and service charges
Limits to deductions if you work in retail
In some cases, an employer can make a deduction to cover any till shortages or stock shortfalls. This is only if it is allowed in someone's contract.
An employer can take a maximum of 10% of someone's weekly or monthly 'gross pay' (pay before tax and National Insurance).
This limit does not apply to someone's final wages if they leave their job.
The employer must let the worker know in writing if they owe them money. They must explain how they'll claim it back before the next pay day.
The employer must reclaim the money within 12 months of finding the shortage or shortfall.
When a deduction can take wages below the National Minimum Wage
Deductions must not take someone's pay below the National Minimum Wage, unless the deduction is for:
- tax or National Insurance
- something a worker's done which their contract says they're liable for, such as damage to a vehicle through reckless driving
- repayment of a wage advance or loan
- an overpayment made by mistake
- buying shares, other securities or share options in the business
- accommodation being provided by an employer – find out more about accommodation deductions on GOV.UK
- voluntary training – the worker must have agreed in writing beforehand to pay back the costs
A worker may want an employer to make a deduction and pass it to a third party. For example, deductions for Trade Union subscriptions or pension contributions. These deductions can be made as long as:
- they are not needed because of their job
- the employer does not use the payment themselves
- the employer does not benefit positively in any way from the payment
Income Tax and National Insurance deductions
If someone has the legal status of employee or worker, the employer must:
- deduct tax and National Insurance (NI) contributions from their pay
- pass these on to HM Revenue and Customs (HMRC)
If an employer is not passing on these contributions, you can contact the HMRC helpline.
People who are self-employed organise paying tax and other deductions themselves.
Find out more about:
If you do not agree with a deduction
If a worker disagrees with a deduction, they can raise it with their employer. It's usually best to raise it informally first. They can do this by talking with their employer.
If they've already tried to resolve things informally, they can raise a grievance. This is where they make a formal complaint to their employer.
If they've not been able to resolve the issue, they might be able to make a claim to an employment tribunal.
For example, they might be able to make a claim for:
- unlawful deduction from wages
- breach of contract, if they're no longer employed
How far back you can claim
There are strict time limits for making a claim to an employment tribunal.
If an employer made 1 wrong deduction, the worker has 3 months minus 1 day from the date of the deduction to make a claim to an employment tribunal.
If several deductions were made, the worker has 3 months minus 1 day from the date of the most recent deduction.
The worker can claim up to 2 years back as long as either of the following apply:
- there's less than 3 months between deductions
- the deductions are linked – for example, they might be linked if they are caused by the same error
Find out more about employment tribunal time limits
Get more advice and support
Acas is not able to give advice about tax and National Insurance. If you need advice on these you can find out how to contact HMRC on GOV.UK.
If you need more advice about deductions, you can:
- contact the Acas helpline
- talk to a trade union representative, if you're a member
Acas also provides training on deductions from pay.