What counts as authorised deductions?
In some cases, your employer can take money out of your pay. These are known as authorised deductions. Usually, your employer is legally obliged to make these deductions.
If you’re unsure why money has been deducted, the best thing to do is talk to your employer to find out why. It could be a genuine mistake, or they may have a good or authorised reason.
Authorised deductions include:
Statutory deductions
Statutory deductions are those that your employer must make by law. Income tax and National Insurance fall into this category. They should be labelled as such on your payslip. If you think you’re paying too much tax, you may be on the wrong tax code, which is the code used to work out how much tax you should pay. Speak to HR or call HMRC to check.
Student loan repayment
If you went to university, your student loan, or “graduate tax” as Martin Lewis calls it, will be taken directly from your pay. The amount you pay depends on when you started your course. Plan 1 applies to those who began before 1 September 2012 and requires repayments of 9% of earnings over £1,615 a month or £372 a week, over 25 years. Plan 2 applies to those who started after 1 September 2012 and requires repayments of 9% of earnings over £2,124 a month or £511 a week, over a 30-year period. Postgraduate loans are charged at 6% once you earn £1,750 a month or £404 a week or more.
Pension contributions
Legally, your employer must enrol you into a workplace pension if you’re an employee over the age of 22, you earn at least £10,000 a year, and you usually work in the UK. This is separate from your personal pension and the basic state pension. It is an opt-out scheme, meaning that if you do not specifically ask to be taken out of the scheme, your contribution will be automatically deducted from your pay. The amount you pay depends on the type of pension you have, and your employer and the government will also contribute to your pension pot.
Court order debts
Sometimes a court may decide that, in order to repay your debt, a sum will be deducted from your wages each month. Your employer must abide by this ruling. However, if your financial circumstances change, you may be able to apply to the courts to change the order using the government’s forms.
Accounting errors
Mistakes happen, and if your employer has paid you too much, they are within their rights to take that money back. If you notice you have been paid the wrong amount, you should inform HR straight away. Do not spend it.
Money you owe
If you owe your employer money for any reason, they may be able to deduct that directly from your pay. This should be agreed in advance. This can also include property damage or loss. For example, if you break your work phone or laptop, they may deduct the amount needed to replace it.
Industrial action
An employee who has taken part in lawful industrial action may see a deduction for the hours they missed from work.
What are unauthorised deductions?
Unauthorised deductions, as the name suggests, are deductions from your salary or wages that your employer has no right to make. If you have worked for it and it is not authorised, it is against the law for an employer to withhold or deduct your pay.
Talk to your employer immediately if this has happened.
Excluding authorised deductions, an unauthorised deduction occurs when:
- It is not mandated by law
- It is not in your contract
- You did not agree to it in writing
What should I do if deductions have been made?
Always raise the matter with your employer when a deduction has been made. They should be able to explain why pay is missing or, if the payroll department has made an error, rectify the mistake.
If you disagree with a deduction, you might want to make an unpaid wages claim. In the legal world, wages usually include:
- Your basic salary or wage
- Holiday pay
- Statutory sick pay
- Statutory parental pay
- Commission
- Tips
- Redundancy pay, notice pay, and pay in lieu of notice
- Any money your employer owes you
You cannot simply take your employer straight to an employment tribunal. Instead, the process begins by informing the independent body for employees and employers, ACAS.
The organisation will then ask you and your employer to attend early conciliation to see whether a legally binding agreement can be reached between both parties. If the talks break down, you will then receive a certificate allowing you to take the case to a tribunal.
However, if you are seriously considering making a claim for unpaid wages, it is worth first discussing the issue with an employment solicitor. They can advise on whether you have the right to make a claim and how best to do it.
Tribunals can be stressful, confusing, and time-consuming, so you will want to make sure you are fully prepared. A solicitor can help you give your claim the best chance of success.
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In the context of understanding and managing payroll deductions, using a payroll calculator can be especially helpful. A payroll calculator gives both employers and employees clearer insight into net pay after deductions. For employees, it offers a way to independently check the accuracy of payslips against contractual entitlements and statutory deductions such as tax and National Insurance contributions.
Employers can use payroll calculators to improve transparency and accuracy in their payroll processes, helping to reduce the likelihood of errors that could lead to disputes. These tools can accommodate different payment structures and deduction types, making them useful across a range of employment situations.
Can your employer deduct money from your wages?
In certain circumstances, employers are legally allowed to deduct money from an employee’s wages. These include situations where deductions are required by law, such as National Insurance contributions, where they are set out in your employment contract, or where you have given prior written consent. However, there are strict legal rules governing these deductions to protect employees from unfair reductions in pay.
What is an unlawful deduction of wages?
An unlawful deduction of wages happens when an employer deducts money from an employee’s salary without a legal basis or proper authorisation. This includes deductions not covered by statutory requirements, contract terms, or the employee’s written consent. If you believe you have been subjected to an unlawful deduction, you may have grounds for a legal claim.
Can my company reduce my salary?
A company can reduce an employee’s salary, but only in certain circumstances. In most cases, the reduction must be agreed by both the employer and employee, usually through a change to the employment contract. Without mutual consent, a salary reduction could be unlawful. It is important for employees to understand their rights and seek advice if they are facing a unilateral salary reduction.