When an employee leaves your business, there’s usually a checklist: final pay, P45, handover notes… and hopefully, the return of company equipment.
But what happens when that laptop, mobile phone or tablet doesn’t come back?
Aside from being frustrating, unreturned equipment can cause real costs to your business. However, dealing with it incorrectly can expose employers to legal claims.
This article explains what employers can and cannot do, based on guidance from Acas, HMRC, and the Employment Rights Act 1996 (as amended).
Start With Prevention
Before thinking about deductions or legal action, prevention is always the safest route.
Good practice includes:
- Asking employees to return all company equipment before their final working day
- Using a leaver’s checklist (laptops, phones, chargers, passes, documents)
- Making expectations clear in the employment contract
- Confirming return arrangements in writing during the resignation or termination process
Acas recommends clear communication and reasonable behaviour by both parties when employment ends, including around company property.
Can You Deduct the Cost of Equipment from Final Pay?
This is one of the most common (and risky) areas for employers.
Under UK law, deductions from wages are only lawful in limited circumstances.
The Employment Rights Act 1996 protects employees from unlawful deductions. This means an employer can only deduct money from wages if:
- The deduction is required or authorised by law, or
- The deduction is clearly allowed by the employment contract, or
- The employee has given prior written consent to the deduction
When a deduction may be lawful
You may be able to deduct the cost of unreturned equipment from the employee’s final salary only if:
- The employment contract includes a specific clause allowing deductions for unreturned company property, or
- The employee has provided written agreement before the deduction is made
The wording must be clear and unambiguous.
When a deduction is not lawful
If you deduct pay without contractual authority or written consent, the employee may bring a claim for unlawful deduction of wages, even if they still have your equipment.
Good intentions do not override statutory protection.
What If the Contract Requires Equipment to Be Returned — But Doesn’t Allow Deductions?
If your contract states that employees must return company equipment, but does not include a clause allowing deductions from pay, you cannot automatically deduct the cost.
In this situation, the employer’s option may be to:
- Bring a civil claim for breach of contract
- Seek either the return of the equipment or financial compensation
While this avoids unlawful deductions, it can be time-consuming and may not always be cost-effective.
How Outstanding Annual Leave Is Treated
Final pay disputes often involve holiday entitlement.
If the employee is owed holiday
Under HMRC and Acas guidance, any accrued but untaken statutory holiday must be paid in the employee’s final salary.
Employers cannot withhold holiday pay because equipment has not been returned — unless there is a lawful deduction clause that specifically allows this.
If the employee has taken too much holiday
If an employee has taken more holiday than they have accrued, you may be able to deduct the excess, but only if:
- The employment contract allows this, or
- The employee has agreed in writing
Without this authority, deducting overused holiday may also be classed as an unlawful deduction.
Is the Employment Rights Act 1996 Still Relevant?
Yes — very much so.
The Employment Rights Act 1996 remains the key piece of legislation governing unlawful deductions from wages, final pay, and employee protections.
While the Act was originally passed in 1996, it has been updated and amended multiple times, and the current consolidated version reflects those changes.
It still underpins:
- Protection against unlawful deductions from wages
- Rules around final pay
- Entitlement to accrued holiday pay on termination
There is also a new Employment Rights Bill progressing through Parliament, which is expected to introduce further amendments in 2026. Importantly, this will amend and build on the 1996 Act, not replace it.
For employers, this means the rules around deductions and final pay remain firmly grounded in the Employment Rights Act — and compliance remains essential.
Why Clear Contracts Matter
Most disputes around final pay come down to what is written in the employment contract.
Contracts should clearly address:
- The obligation to return company equipment
- The employer’s right to deduct costs for unreturned property
- Recovery of excess holiday taken
- How final pay will be calculated
Without these clauses, employers face higher risk and fewer options.
Should Employers Use a Disclaimer?
Yes — but it should be used properly.
A disclaimer:
- Helps manage expectations
- Clarifies that policies are not legal advice
- Supports (but does not replace) contractual terms
A disclaimer cannot override employment law, but it forms part of good governance and risk management.
Key Takeaways for Employers
- Ask for company equipment to be returned before employment ends
- Use a leaver’s checklist
- Never deduct wages without clear contractual authority or written consent
- Pay any accrued holiday owed, even if equipment hasn’t been returned
- Review employment contracts regularly
- Seek professional advice before making deductions
Disclaimer
This article is for general information only and does not constitute legal advice. Employment law changes over time, and individual circumstances vary. Employers should seek professional or legal advice before making deductions from pay or taking contractual action.
