When can Retailers Lawfully Make Deductions from Workers’ Pay Due to Cash or Stock Shortages?

In some cases, a retail employer can lawfully make a deduction from a worker’s wages on account of cash shortages or stock deficiencies. However, under the Employment Rights Act 1996 retail workers are protected in relation to when deductions can be made, and what can be deducted from their wages.

Workers’ rights

When can a deduction be made?

An employer can only make a deduction from wages on account of cash shortages or stock deficiencies if:

  • the worker’s contract of employment authorises the deduction
  • where the worker has consented to the deduction in writing, or
  • there is specific legislation authorising such a deduction, such as National Insurance contributions or tax

Where a worker’s contract of employment makes provision for a deduction in wages, no deduction can be made in respect of shortages or deficiencies which arose before the date of the contract. Also, the worker must be given a written explanation of the proposed deductions before they can be deducted.

Similarly, where a worker has consented to the deduction in wages, no deduction can be made in respect of shortages or deficiencies which arose before the date upon which they gave their written consent.

How much can be deducted?

Where an employer is entitled to make a deduction, the amount of the deduction (or the aggregate amount of the deductions in the case of more than one deduction) must not exceed 10 per cent of the gross wages due to the worker on a particular pay day.

How long does an employer have to make a deduction?

The employer has twelve months in which to make a deduction. The twelve months commences on the date on which the employer became aware of the cash shortage or stock shortfall, or the date on which it ought reasonably to have known there was a shortage/ shortfall. Therefore, any deduction made after the twelve-month period is treated as an unlawful deduction whether or not consent was given.

Unlawful Deductions

What if an unlawful deduction has been made?

If a retail employer makes an unlawful deduction from a worker’s wages, and the employer refuses to pay the balance to the worker, a claim may be made to the employment tribunal.

The claim should be started within three months of the date the deduction from the wages was made. Where the complaint relates to a series of deductions, this three-month period begins on the date the last deduction was made. 

The tribunal has discretion to consider a complaint made after three months if it is satisfied that it was not reasonably practicable for the worker to make the complaint within that three-month period.

What powers does an employment tribunal have?

If the employment tribunal upholds the worker’s claim, it will make a declaration to that effect. It will also make an order requiring the employer to pay the amount of the deduction to the worker. 

Article written by...
Nicola Laver LLB
Nicola Laver LLB

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A former solicitor, Nicola is also a fully qualified journalist. For the past 20 years, she has worked as a legal journalist, editor and author.