Deduction’s clauses in contract of employment. Why have them?

Deduction’s clauses in contract of employment can be quite controversial and can be seen as unfair.  But equally, there are occasions when you want an option to make a deduction where there has been fault on the part of the employee.

Having a deduction clause gives you choice in a situation, and for many businesses they would prefer to have the choice than to not have!

So, let’s look a bit deeper at deductions clauses and look at some real examples.

Very simply, you cannot make a deduction from an employee’s earnings unless you have the contractual right to do so with a clear deductions clause (except for statutory deductions).

Why might this be important? Well, if an employee deliberately or negligently damages company property, or gets a parking ticket, or loses company property or does not return company property when they leave, you would be unable to legally make a deduction from their wages or salary. This can be very frustrating (and costly).

No one is talking about making deductions unfairly, but we all know that it seems to be the same employee(s) where you have problems. A deductions clause can act as a deterrent and can help encourage the behaviour you want.

Example / Case Study

Example 1: We included a deductions clause in the clients contracts of employment when redrafting contracts, and included the right to deduct if an employee had an accident in their company car/vehicle for the insurance excess if this became due. The client saw an immediate decrease in the number of minor accidents and damage to company vehicles.

 Example 2: We had a new client who called us because an employee lost their temper in the office and threw their lap-top against the wall! Now, there were lots of issues regarding his conduct and disciplinary matters that we supported this new client with, but one of the questions was, who pays for the damaged laptop?  Our first response was ‘what does the contract say’ as without a deductions clause the employer could not ‘legally’ make a deduction. They did not have such a clause in their contracts. We later re-drafted and implemented new contracts that included a deductions clause (and many other clauses), to give them further protection and flexibility.


Take a look at your contracts and making sure you have a clear deduction clause.

For further information on contracts of employment and templates contracts and clauses, please visit

Natalie Rodda

If you feel that you need guidance or advice on this matter, please call Practical HR on 01702 216573


Need some advice on this matter?

If you need advice or guidance on the subject matter outlined in the above item, or any other employment matter, please get in touch. We’d love to hear from you.