There are many common misconceptions about what and how much can you deduct from worker’s wages. Making a mistake can be very costly and may result in a tribunal case, so let us help you prevent that.

What sort of deductions can you make?

The obvious deductions would be payments required by law such as National Insurance contributions, income tax or student loan repayments. Statutory payment which is due to a public authority such as HMRC is also lawful and so are court orders as long as you follow directions and amounts sent in to you.

You can also make a lawful deduction if there’s been a case of an overpayment, the employee took an advance on their salary or took more holidays than entitled to. Accommodation charge, staff purchases such as food and beverage tabs, are all fairly obvious and straight forward cases, but what happens in case of costly breakages or shortfalls in tills?

You can make other deductions such as for breakages and till shortfalls providing these are written in the contract and agreed ahead, but there are some limitations to how much you are able to deduct.

How much can I deduct?

Usually, deductions cannot reduce employee’s pay below the National Minimum Wage even if they agree to it. Exceptions are:

  • tax or National Insurance
  • contract says employee is liable for it, for example a shortfall in till if they work in a shop
  • repayment of a loan, advance of wages or accidental overpayment
  • buying shares, pension contributions or union subscriptions.
  • payment for accommodation provided by employers
    Can I deduct the full sum in case of a shortfall?

No more than 10% of gross pay (pay before NI and tax) can be taken to cover for shortfalls, unless your employee is leaving, in which case you can make a full deduction from their final pay. If the shortfall is greater than 10% of gross pay, it must be deducted in parts weekly or monthly – depending on your agreed payment structure.

Court order – attachment of earnings order

When your employee owes a sum of money greater than £50, the court may decide to issue attachment of earnings to retrieve the money owed. As an employer, you will be sent a letter telling you exactly how much to deduct each month and for how long. You must follow their directions or face a potential fine for non-compliance. If your employee disagrees with these deductions or want to pay it themselves, they must contact the creditor and make arrangements with them.

It may all seem like a minefield, but by outsourcing your payroll with One Less Worry, you make sure that these mistakes don’t happen. Your assigned payroll adviser will be able to explain any payment matters so that you can pass this information on to your employee and keep your mind at ease.