You spot a payroll mistake, an unpaid training bill or missing equipment, and arrange to take the cost from someone’s next pay. Employers can make wage deductions in the UK, but a reason to recover money doesn’t automatically authorise a deduction.
The legal basis, contract wording and minimum wage calculation all matter. Before your payroll team processes anything, establish which rule allows the deduction and what limits apply.
Key takeaways
- Most deductions need statutory authority, a relevant contractual term or the worker’s written agreement beforehand.
- Accidental wage overpayments have a separate statutory exception, so recovery doesn’t always require a contractual clause.
- Minimum wage rules, retail limits and tribunal deadlines still apply, even where money is genuinely owed.
These protections generally cover workers as well as employees. This guidance focuses on England, Wales and Scotland; Northern Ireland has separate legislation and procedures.
When wage deductions are lawful
Start with the statutory test
Section 13 of the Employment Rights Act 1996 sets the main test for deductions from pay. An employer can normally deduct wages only where:
- Legislation requires or authorises the deduction.
- A relevant contractual term authorises it.
- The worker agreed to it in writing beforehand.
Statutory deductions include Income Tax through PAYE, National Insurance contributions and qualifying student loan repayments. An attachment of earnings order requires the specified deduction, while a child maintenance deduction order is a separate statutory route. A court order alone doesn’t authorise a deduction unless legislation requires it.
Pension contributions may be deducted only where the applicable statutory, contractual and pension-scheme requirements provide authority.
Acas’s deductions guidance explains the main categories and exceptions. Don’t treat a manager’s approval as a substitute for lawful authority.
Make the contract match the deduction
A contractual clause must cover the deduction you’re making. The worker must have received the relevant written term, or written notification of it, before the deduction.
A clause about recovering training costs doesn’t automatically authorise deductions for damaged equipment. And a general reference to company policies may leave the position unclear.
Our guide to UK employment contract terms explains how to document pay and other obligations. The wording needs to support what payroll actually does.
Can you recover an accidental overpayment?
Section 14 provides an exception for recovering accidental overpayments of wages or expenses. Employers don’t always need a contractual deduction clause or fresh written consent.
You still need to establish that an overpayment occurred. Acas’s guidance on handling overpayments recommends explaining the mistake and discussing repayment, particularly where the amount is substantial.
An inaccurate contract creates a different problem. If a part-time worker’s contract promises a full-time salary, establish the worker’s contractual entitlement before deciding whether an actual overpayment occurred.
Money due under a binding term isn’t automatically a payroll error. Treating it as recoverable without checking the contract could amount to a breach of contract.
For genuine overpayments, record the calculation and discuss manageable instalments. Taking the entire balance without warning can create avoidable hardship and disputes.
Minimum wage rules need a separate calculation
Written consent doesn’t settle minimum wage compliance
A deduction can satisfy the contractual rules and still breach National Minimum Wage requirements. Employer-benefit deductions, including some charges for uniforms or equipment, can reduce pay for minimum wage purposes.
Don’t compare the worker’s final bank payment with an hourly minimum. Tax, National Insurance and accidental overpayment recovery are treated differently within the calculation.
Your payroll team needs to assess the deduction’s purpose and the relevant pay reference period. Approval from HR doesn’t remove that calculation.
Salary sacrifice has a firm limit
Salary sacrifice reduces contractual cash pay in exchange for a benefit. Cycle to Work arrangements and existing childcare voucher schemes are common examples.
The arrangement mustn’t reduce cash earnings below the applicable minimum wage. HMRC’s salary sacrifice guidance explains the employer’s responsibilities.
A worker’s agreement doesn’t waive this protection. Review the arrangement when working hours, pay or minimum wage rates change, rather than assuming last year’s calculation still works.
Training costs, lateness and sickness absence
Agree training recovery before the course
If you want to recover training costs when someone leaves, use a tailored written agreement before the training starts. Set out the actual costs, repayment triggers, any reducing repayment scale and consent to deductions.
An agreement doesn’t automatically make every charge enforceable. Excessive charges can be challenged, and mandatory training costs need particular attention under minimum wage rules.
Required training time counts as working time for minimum wage purposes. Calling a compulsory session “unpaid” doesn’t remove that obligation. The calculation must include the time workers are required to spend attending.
Keep absence deductions separate from penalties
Contract terms should explain how pay is calculated for lateness or unauthorised absence. Deducting pay for time not worked is different from imposing an additional financial penalty.
A manager can’t create a fine because someone misses a mandatory training session. Any proposed deduction needs lawful authority, and the employer must address any underlying unpaid working time.
Sickness absence needs separate treatment. Check whether the employee qualifies for statutory sick pay and any contractual sick pay entitlement. An absence policy doesn’t allow you to remove sick pay that’s legally due.
Retail stock and cash shortages have an extra limit
For retail workers, deductions for stock deficiencies or cash shortages can’t normally exceed 10% of gross wages on that payday.
On gross weekly wages of £250, the maximum shortage deduction is £25. Several shortage deductions on the same payday share that limit; each deduction doesn’t receive its own allowance.
The deduction still needs lawful authority. A missing till balance alone doesn’t give the employer permission to take money.
The 10% cap doesn’t apply to the final contractual payment when the worker leaves. However, the underlying authorisation requirements still apply.
The final-pay exception removes the retail percentage cap. It doesn’t create a new right to deduct.
Payslips and payroll records serve different purposes
Since 6 April 2019, workers as well as employees have been entitled to an itemised pay statement. It must be supplied at or before payment.
The statement must show gross pay, net pay and deductions with their purposes. Fixed deductions can sometimes be supported by a separate standing statement under the statutory rules.
Putting a deduction on a payslip doesn’t make it lawful. Paying less than the amount properly due can also amount to unlawful deductions, even if payroll hasn’t listed a separate deduction.
Before approving payroll deductions, keep the relevant contract or consent, calculation, supporting evidence and correspondence together. Ask who authorised the deduction, which rule applies and whether minimum wage or retail limits affect the amount.
Human resources and finance need the same record. Otherwise, payroll may follow an instruction without seeing the agreement that supposedly supports it.
Challenging deductions and managing tribunal deadlines
The deadline changed in October 2026
For relevant deductions before 1 October 2026, the usual tribunal deadline is three months less one day. For deductions on or after that date, the usual period is six months less one day under the Employment Rights Act 2025 reforms.
For a qualifying series, time runs from the last deduction. Whether deductions form a series depends on their connection; a gap alone doesn’t necessarily settle it.
A deduction dated 15 October 2026 therefore has an ordinary six-month deadline of 14 April 2027, before Early Conciliation adjustments.
The guidance explains deadline calculations. Raising a grievance doesn’t stop the clock.
Conciliation and recovery are separate questions
A worker considering a tribunal claim must normally notify Acas before lodging it with the employment tribunal. The Early Conciliation service gives both sides an opportunity to resolve the dispute and affects the deadline calculation.
For most unlawful deduction claims in Great Britain, a separate two-year backstop limits how far back recoverable deductions can go. That isn’t an extra two years to start proceedings.
A tribunal can order repayment and compensation for directly attributable financial loss. There’s no general statutory cash cap, but the award depends on proven losses and applicable recovery limits.
Interest isn’t automatically added to every unlawful deduction award. Enforcement and interest rules need separate consideration.
Employers should investigate promptly, explain their position in writing and repay any admitted shortfall without waiting for a hearing.
Frequently asked questions about wage deductions
Can you deduct money because a worker owes the business?
An outstanding debt doesn’t automatically authorise a payroll deduction. You still need the relevant statutory exception, contractual right or prior written consent.
That includes equipment which hasn’t been returned. Our guidance on recovering company property explains why paying wages and pursuing the property may need separate action.
Leaving without full notice doesn’t create an automatic right to withhold final pay either. Any recovery needs a lawful basis and a defensible calculation.
How much tax should be deducted from salary?
There’s no single percentage that applies to every worker. PAYE Income Tax depends on taxable earnings, the tax code and the applicable tax bands, including Scottish rates where relevant.
National Insurance and student loan repayments have separate rules. Keep these statutory payroll calculations separate from deductions your business chooses to make.
Put the authority in place before payroll runs
Before taking money from wages, establish the lawful basis, calculate the amount and apply any additional limits. A clear explanation helps, but it can’t replace the authority to deduct.
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