Ask HR: Can I deduct money from an employee's wages?

An employee has made a mistake that's cost the company a fair bit of money. Can I deduct the amount from their wages, or is that not allowed?

Calculating Pay

There are only two circumstances in which you can make deductions from an employee's wages:

1. where it is required by law (income tax, pensions, CSA etc)

2. where it is written into the employment contract and the employee has agreed to it.

Even with agreement, you must ensure that the deduction does not bring pay below the National Minimum or Living Wage for the hours worked.

For mistakes, a better approach is to:

• Discuss the issue openly with the employee.

• Offer additional training or support to prevent future errors.

• Implement checks or processes to reduce the risk of costly mistakes.

• Follow a disciplinary procedure if this mistake has happened before or is a result of negligence.

💡 Key Tip: Document everything. Clear communication, contracts, and policies protect both your business and your employees.

At Lilac HR, we always encourage employers to handle errors through coaching and process improvements, rather than wage deductions — it keeps morale high and your business compliant:

• Audit procedures and policies at least once a year to ensure they're still relevant.

• Train staff on any policy updates - this is made extra easy with Breathe HR.

• Sign up to the How to HR Toolkit to download template contracts and handbooks to help you manage employee conduct issues

• Contact us for retained support to help you manage compliance effortlessly.