(Or: “Just Because Something’s Gone Missing Doesn’t Mean You Can Take It Back from Wages”)
At some point, most businesses face it.
A till is down.
Stock is missing.
Something gets damaged.
And the question lands:
“Can we just deduct it from their wages?”
Payroll takes a deep breath.
Because this is one of those areas where what feels “fair” and what is actually lawful are not always the same thing.
Let’s go through it properly.
First: The Starting Point — You Can’t Just Deduct Pay
Under employment law, and reinforced by Acas guidance, wages are protected.
That means an employer cannot make deductions from wages unless:
- It is required by law (e.g. tax, National Insurance)
- It is allowed for in the employee’s contract
- The employee has given prior written agreement
If none of those apply, the deduction may be considered an unlawful deduction of wages.
And that is where problems start.
What Acas Says About Deductions
Acas is very clear on this.
For deductions relating to damages, shortages, or mistakes:
- The deduction must be authorised (contract or written agreement)
- The employee should be informed clearly
- The deduction should be reasonable
- The employer should investigate the situation properly
You cannot simply assume responsibility and deduct accordingly.
Even if the loss feels obvious.
Retail Rules: The 10% Limit
If you’re in retail, there is an additional layer.
For deductions relating to:
- Cash shortages
- Stock deficiencies
The law limits how much you can deduct from wages.
The key rule is:
- You cannot deduct more than 10% of the employee’s gross pay in any pay period
This limit applies even if the contract allows deductions.
So if someone owes £200 but earns £1,000 gross per month, you cannot take the full amount in one go.
It must be spread over multiple pay periods.
This is often missed — and regularly causes disputes.
You Still Need to Prove Responsibility
This is where many businesses get caught out.
Just because a till is short does not automatically mean:
“That employee owes us money.”
You should be able to show:
- Who was responsible
- What happened
- That the deduction is justified
Acas guidance stresses fairness and proper process.
If an employee challenges the deduction, you need to demonstrate it wasn’t arbitrary.
Because “we think it was them” is not a strong position.
What About Damage to Equipment?
The same principles apply.
If an employee damages:
- Equipment
- Vehicles
- Tools
- Company property
You can only deduct the cost if:
- The contract allows it, or
- The employee agrees in writing
Even then, the deduction must be reasonable.
Trying to recover the full cost of expensive equipment in one pay period is likely to be challenged.
HMRC’s Position: Payroll Must Process Lawful Deductions
From a payroll perspective, HMRC is not concerned with whether the deduction is fair — but it is concerned with how it is treated.
If a deduction is made:
- It reduces the employee’s taxable pay
- It must be processed correctly through payroll
- It must not take pay below National Minimum Wage where rules apply
This is important.
Some deductions — even if contractually allowed — must not reduce pay below National Minimum Wage.
This is where payroll and compliance overlap.
Because you can have a lawful deduction contractually that becomes unlawful when applied through payroll.
Common Mistakes We See
This is where it tends to go wrong:
- No contractual clause allowing deductions
- Verbal agreement instead of written
- Deducting full amounts in one go
- Ignoring the 10% retail rule
- Not investigating properly
- Deducting and explaining later
- Reducing pay below National Minimum Wage
Most of these come from trying to fix a problem quickly.
But quick fixes in payroll tend to create longer problems.
The Payroll Reality
Payroll sits in an awkward but important position here.
We are not there to decide fault.
But we are responsible for:
- Processing deductions correctly
- Ensuring compliance with HMRC rules
- Flagging risks (especially NMW breaches)
- Keeping records accurate
If something doesn’t look right, it usually isn’t.
The Love Payroll View
At Love Payroll Limited, we always pause before processing deductions like these.
We ask:
- Is there a contractual clause?
- Is there written agreement?
- Has the situation been investigated?
- Does this comply with NMW rules?
- Does this need to be spread over time?
Because protecting the business also means protecting it from getting this wrong.
Final Thought
You cannot deduct money from wages simply because something has gone wrong.
You can deduct where:
- It is authorised
- It is fair
- It is reasonable
- It is processed correctly
Anything else risks becoming an unlawful deduction claim.
And those are far more expensive than the original shortage ever was.
