Deductions from Wages

What are the components of wages?

Wages are what your employer pays you for doing your job. Wages include all the compensation connected with your job such as bonuses, fees, commissions, overtime pay, holiday differentials, etc. Other payments such as sick pay or maternity pay likewise form part of this. Also included are items with fixed values which can be used as payment for goods and services or exchanged for cash. These can be items such as cash vouchers, gift certificates, etc.

Some items do not form part of your wages. These include tips received in the course of your work, loans and salary advances, pensions and lump sum payments for retirement are not part of wages either. The reimbursement or payment for expenses incurred in the course of performing your job is also excluded (eg, the travel expenses).

Disclosure of deductions

Workers are afforded a substantial amount of protection from unauthorised wage deductions through several rules and regulations. All deductions must be disclosed by the employer beforehand. The reasons for the deductions must be clearly stated and within the parameters and guidelines issued by the government.

Government rules regarding deductions

Under the law, the deductions are only permitted if they are:

  • allowed by law – eg, income tax, National Insurance or government loan payments;
  • explicitly consented to in writing by the employee, subject to certain conditions;
  • explicitly mentioned in the employee’s contract of employment and agreed to by the employee;
  • statutory payments to be made to a public authority;
  • incurred as a result of absence from work because of employee participation in strikes and other industrial actions;
  • for the purpose of recovering excess payments of wages or expenses;
  • ordered by a court or through an employment tribunal decision.

Even with your explicit permission, deductions must not result your pay levels falling below the standard national minimum wage unless it is for:

    tax or National Insurance; something you’ve done and your contract says you’re liable for it, eg, a shortfall in your till if you work in a shop; repayment of a loan or advance of wages; repayment of an accidental overpayment of wages; buying shares or share options in the business; accommodation provided by your employer; your own use, eg, union subscriptions or pension contributions.

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For more information on:

  • Retail work: extra protection from deductions
  • Procedure to follow in the event of deductions