Home > Articles/Publications

British Barbers

ARTICLE ORIGINALLY PUBLISHED September 2024

Deductions From Pay

Inevitably there are going to be incidents or circumstances when staff are overpaid in your Salon or there are circumstances where you need to recover monies directly from an employee’s pay because of for example a retail error or a loan or product purchase.

How can an employee be overpaid? There are many ways; it may be human error, or it might be where their pay has been processed and they are absent for a few days at the end of the month. But there are other cases where the overpayments can have taken place over a period of time and/or are much more substantial.

The Law

The Employment Rights Act 1996 is the relevant piece of legisation although there are a number of Employment Tribunal Cases which have added further clarity to the rights of recovery of overpayments or deductions from salary. But remember employers have six years from the date of the overpayment to make a contractual claim. If the claim is made after this time, a judge may extend the limitation date, but it may be more expensive to pursue the claim than the overpayment amount.

The Process

Firstly you should have a paragraph in your Contract giving you the right to make deductions from salary and recover overpayments. This normally makes reference to the term “after consultation”. It would be unreasonable to make a deduction or a series of deductions without first discussing this with the employee. We dont want then to find out when they receive their payslip. In most cases it is simply a matter of discussing how the overpayment occurred and advising how and when the monies will be deducted. If the fault lies with the employer I always recommend you offer a generously long period for the recovery because if the employee simply refuses, you may find you have no right to recover the monies.

Employees have rights not to have an authorised deduction from their salary and they can either go to Employment Tribunal to recover the unlawful deduction of pay or resign and claim breach of contract.

Cash Shortfalls in the Till or Wasted Stock/Breakages

There are specific provisions for employees working in retail (which includes salons) and these are helpful to salon owners.

Where a salon experiences a cash shortfall or a stock deficiency (arising from a retail transaction) the employer can recover the shortfall from wages provided that cash deduction doesn’t exceed 10% of the employees gross pay. This is in addition to any disciplinary action you take.

The deductions can take place over a number of months but cannot continue, or commence, 12 months or after the error occurred. Any demand for payment must be made in writing and must be must be made on a workers pay day.

Where It Can Go Wrong

With an appropriate clause in your contract you consult with an employee and then recover the overpayment. You will have to be reasonable and possibly recover the overpayment over a period of time.

However, in a recent Tribunal case an employee had been quoted the wrong salary in her contract and had been overpaid for some years. The Tribunal concluded she had received and spent the money in good faith and recovery of the overpayment would be an unlawful deduction of pay.

This is consistent with a legal term called Estoppel. When the overpayment is the fault of the employer, the employee received and spent the money in good faith. An employee has the right to make a claim to Employment Tribunal that a deduction is unlawful and the Tribunal can, if it upholds the claim, order repayment.

Articles/Publications