Deductions from pay - employers

This section covers deduction from pay.

Employers have the right to deduct money from an employees pay if

  • The employment contract allows for the deduction
  • The employee agrees to the deduction in writing
  • Law requires it. Eg tax and national insurance
  • Missed work due to strike or industrial action
  • An overpayment was made

You cannot make a deduction that takes the employees wage below the national minimum wage unless it is for:

  • Tax or national insurance
  • Damage they are liable for under their contract of employment
  • Repayment of a loan or advance on wages
  • An overpayment made by mistake
  • Buying shares or options in the business
  • For accommodation you are providing
  • Something the employee uses eg. Subscriptions or pension contributions

Deductions from pay and the minimum wage

Certain deductions reduce pay for minimum wage purposes. This becomes a minimum wage issue when it risks reducing the employee’s pay below their minimum legal entitlement. For more information visit GOV.UK – Calculating the minimum wage.


How the money is paid back:

You should agree with your employee as to how the money will be paid back to you. If the sum is large, it is best that an agreed payment plan is put in place to clearly manage the overpayment.

If they have left employment:

IF an employee has left your employment and you have overpaid them, speak directly to them and ask for the sum to be repaid. If they refuse, you should seek legal advice on how to claim the money back.

Last updated: 24 September 2021