Can I make a deduction from an employee’s salary?

If an employee fails to return company property, such as laptops, uniforms or mobile phones for example, is it permissible to make a deduction of the equipment value from their final salary?

The short answer is yes, but there are some things to consider.

The ability to make a deduction from salary, whether a final or other salary payment, depends on what is written within your contract of employment.

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Any deductions can only be made if the right to deduct is contained within a relevant part of the contract, this can usually be found under the salary section or under a specific clause on “deduction from wages”. If you don’t have either of these clauses, then you can still deduct payment, but it will require an agreement in writing signed by the employee before any deductions can be made.

The absence of a signed contract doesn’t automatically mean you can’t make a deduction; provided the employee has been given details of this clause in writing or has received prior written notice of the deduction, then you could still go ahead, but obviously this is significantly more challenging to achieve if the employer has already left the business, so best to check that your contract includes the relevant clauses.

Many companies ask employees to sign for company property during their induction, where the documentation specifically records an agreement by the employee for the company to recover the value of their property in the event that it is not returned. This should be sufficient to constitute an agreement to the deduction. Check if the term specifically allows for recovery from final salary. If it does, then the deduction can be made.

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It’s advisable to also consider the test of reasonableness when it comes to the amount to be deducted. If any employee leaves after two years and the uniform is past its sell by date, then to request a payment to the value of a complete new set may be considered unreasonable. Likewise it wouldn’t be reasonable to take the full cost of new equipment from someone whose old tech has depreciated in value over their employment. If in doubt, common sense should prevail.

In order to avoid any difficulties, it is often best to write to the employee in advance, highlighting what needs to be returned and what the charge will be in the event that the property is not returned. Set out that it is the intention to recover these amounts from final salary in accordance with the terms unless an alternative is agreed.

In short, if you are planning on making a deduction, check your contracts, agree the terms, notify the employee in writing detailing your calculations, and be reasonable in terms of what to deduct.

Karen Watkins is the founder of specialist SME HR consultancy Rowan Consulting

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