CONTRACTS - 18.05.2018

Lost equipment and lawful deductions from wages

Out of pocket

At some point, most employers will have to deal with an employee who has incurred unnecessary costs. This could be where their careless conduct or neglect has resulted in loss or damage to company property, e.g. they’ve left a work laptop on a train. In this situation it’s tempting to deduct the costs from their wages but this is likely to backfire on you. So how can you ensure deductions from wages are lawful?

(Un)lawful wage deductions?

Due to the impact that deductions from wages can have on an employee’s finances, the circumstances when it can be done are strictly regulated. The Employment Rights Act 1996 states that deductions can only be made if one of the following applies:

• the deduction is required by statute, e.g. to make NI and PAYE deductions
• the employer has retained a relevant provision in its employment contracts to make deductions
• the employee has consented in advance and in writing to a deduction being made.

Risk of a claim

If you make a deduction from wages unlawfully, the employee can bring a claim against you - this is one of the most common claims at the tribunal. If successful, you would be ordered to reimburse them for the amount deducted and you’re likely to lose the right to get any of your money back. In addition, you’ll need to factor in the additional costs of having to defend a claim, not only in terms of legal fees, but management time in dealing with it.

Be specific

A contractual clause that gives you the right to make deductions from salary/wages must be specific as to the circumstances when this would occur. For example, drafting a clause that says: “the company retains the right to deduct wages for any monies owed” is far too vague. Instead, you should set out the specific instances when you can claim money (see The next step ).

Tip. Our deductions from wages clause includes common examples of when you many want to make a deduction from wages, e.g. there’s been an overpayment due to a payroll mistake, the employee has lost company equipment or failed to return it on the termination of employment. You can add to our comprehensive list if necessary.

Not a penalty

It’s important to note that you can’t penalise the employee financially when making a deduction from wages, i.e. you can’t deduct extra money as an admin cost.

Tip. If you wish to make a deduction for lost, damaged or non-returned equipment, it must be equal to the current market value of the item - you can’t deduct a higher amount, e.g. the cost of a brand new item. Be prepared to explain your calculations if challenged.

Note. No deduction can take an employee below the applicable minimum wage rate for their age. Do your sums carefully before clawing back.

For a free deduction from wages clause, visit http://tipsandadvice-personnel.co.uk/download (PS 20.11.06).