In the UK, an employer can only withhold pay in strictly limited circumstances. The starting point under UK employment law is that workers are entitled to be paid the wages properly due to them as part of the fundamental bargain in an employment contract. If an employer withholds pay without lawful authority, this will usually amount to an unlawful deduction of wages, exposing the organisation to Employment Tribunal claims, repayment orders, interest and reputational risk.
The question “can an employer withhold pay?” arises most often in situations involving resignation without notice, overpayments, disciplinary issues, holiday pay, redundancy pay or deductions for training costs or damage. In each case, the answer depends on whether there is statutory authority under the Employment Rights Act 1996, a clear contractual provision or prior written agreement permitting the deduction.
What this article is about
This guide provides a detailed employer-focused explanation of when pay can lawfully be withheld in the UK and when it cannot. It examines the statutory framework under the Employment Rights Act 1996, how unlawful deduction claims work, and how National Minimum Wage rules interact with deductions. It also addresses common high-risk scenarios, including final pay, quitting without notice, holiday pay, redundancy pay and disciplinary deductions.
Section A: The Legal Framework – Can an Employer Withhold Pay?
The legal position on withholding pay is governed primarily by Part II of the Employment Rights Act 1996 (ERA), titled “Protection of Wages”. The structure of the legislation is deliberately restrictive. The default rule is that deductions from wages are unlawful unless they fall within one of the statutory exceptions.
1. What counts as “withholding pay”?
Withholding pay is not limited to paying nothing at all. Under section 13 ERA, there is an unlawful deduction where:
- the employer makes a deduction from wages, or
- the total wages paid on any occasion are less than the total amount properly payable for that period.
This means that paying less than contractually due, failing to pay accrued holiday, underpaying notice, or making an unauthorised adjustment can all constitute withholding pay.
“Wages” are defined broadly under section 27 ERA and include:
- salary or hourly pay
- commission
- bonuses that are contractually due
- holiday pay
- certain statutory payments
Protection applies from day one. There is no qualifying service requirement, and the right extends to “workers”, not just employees.
2. When does withholding pay become unlawful?
An employer may only deduct or withhold pay where one of the following applies:
- the deduction is required or authorised by statute
- the deduction is authorised by a term of the worker’s contract
- the worker has previously signified agreement in writing
If none of these conditions are met, the deduction will be unlawful.
It is not sufficient for an employer to consider a deduction fair or commercially justified. The authority must fall squarely within the statutory framework.
3. Claims for unlawful deduction of wages
Where pay is unlawfully withheld, a worker may bring a claim in the Employment Tribunal. The claim must normally be presented within three months less one day of:
- the date of the deduction, or
- the last deduction in a series of deductions.
A “series of deductions” will exist where deductions are sufficiently linked. A gap of more than three months does not automatically break the chain, but recovery in the tribunal is capped at two years’ back pay. The two-year cap applies to tribunal claims and does not prevent a separate civil court claim for older sums, although different rules and risks apply in the civil courts.
If successful, the tribunal will make a declaration and order the employer to repay the sums unlawfully deducted. Interest may also be awarded.
Withholding pay can also amount to breach of contract. In some cases, persistent or serious non-payment may entitle the employee to resign and claim constructive dismissal.
Section Summary: An employer cannot withhold pay unless there is clear statutory authority, an express contractual provision, or prior written agreement permitting the deduction. Any shortfall in wages properly due risks an unlawful deduction claim, regardless of the employer’s intentions.
Section B: When Can an Employer Withhold Pay Lawfully?
Although the default position under the Employment Rights Act 1996 is that deductions are unlawful, the Act sets out defined exceptions. An employer can withhold pay only where the deduction falls clearly within one of these permitted categories. Outside these situations, withholding pay will expose the organisation to legal challenge.
1. Statutory deductions
Certain deductions are authorised by statute and do not require contractual wording or employee consent. These include:
- Income tax under PAYE
- National Insurance contributions
- Student loan repayments
- Attachment of earnings orders
- Deductions required by a court or tribunal order
Where a statutory requirement applies, the employer must make the deduction. Refusing to do so may itself create legal exposure.
These types of deductions answer the question “can an employer withhold pay for money owed?” only in limited circumstances. The “money owed” must arise from statutory authority, not from a private dispute.
2. Contractual deductions
An employer may lawfully withhold pay where the employment contract expressly authorises a particular deduction. The clause must be clear and specific. Vague wording will not normally be sufficient. Employers should review their employment contract terms carefully before relying on any deduction clause.
Common examples include:
- Recovery of repayment of training costs if the employee leaves within a defined period
- Repayment of salary advances
- Deductions for damage to company property
- Retail cash shortages
In retail employment, special rules apply. While employment continues, deductions for cash shortages are generally capped at 10% of gross pay per pay period. On termination, however, the employer may deduct the full amount, provided the deduction is otherwise lawful and made within the relevant statutory time limits.
A contractual clause does not give an employer unlimited power. It must be properly drafted, transparent and proportionate. If a deduction clause operates as a penalty rather than a genuine pre-estimate of loss, it may be open to challenge.
3. Prior written agreement
Even if the contract does not contain a deduction clause, an employer may rely on a separate written agreement signed by the worker before the deduction is made.
This commonly applies to:
- Season ticket loans
- Cycle-to-work schemes
- One-off repayment arrangements
The agreement must be obtained in advance. An employer cannot rely on retrospective consent after withholding pay.
4. Recovery of overpayments
An employer is generally entitled to recover an overpayment of wages made by mistake. Unlike most deductions, recovery of accidental overpayments does not require prior written consent.
However, while legally permissible, overpayment recovery must be handled reasonably. Large immediate deductions may give rise to disputes or employee relations issues, particularly where the overpayment arose over a long period and the worker has relied upon it.
Best practice is to:
- Clearly explain the error
- Provide evidence of the overpayment
- Agree a repayment schedule where possible
Failure to approach recovery proportionately may increase litigation risk, even if the legal entitlement to recover exists.
5. Deductions during industrial action
Where a worker participates in strike action or other lawful industrial action, the employer may deduct pay for the period not worked. The deduction must reflect the proportion of time not worked and should be calculated carefully.
Employers cannot impose additional financial penalties beyond pay for work not performed unless separately authorised.
Section Summary: An employer can withhold pay only where there is statutory authority, a clearly drafted contractual provision, prior written agreement, lawful recovery of overpayment, or deduction for industrial action. The authority must be precise and legally defensible.
Section C: Specific Scenarios – When Can an Employer Withhold Pay?
Most disputes arise not from routine statutory deductions, but from practical workplace situations. The following scenarios reflect the most common high-risk areas where employers ask: can an employer withhold pay?
1. Can an employer withhold pay if you quit?
If an employee resigns, including where they resign without notice, the employer must still pay for work already performed. Wages that have been earned cannot be withheld as a penalty for failing to work notice.
Where an employee leaves without notice, they may be in breach of contract. However, that breach does not automatically entitle the employer to deduct sums from final pay unless there is a clear contractual clause permitting this. If the employer believes the employee has committed a breach of contract, the appropriate remedy is usually a separate civil claim, not self-help deductions from earned wages.
In short, quitting without notice does not justify withholding pay for hours already worked.
2. Can an employer withhold final pay?
On termination, whether by resignation or dismissal, an employer must pay:
- All wages due up to the effective date of termination
- Accrued but untaken statutory holiday
- Any contractual entitlements that have fallen due
An itemised payslip must be provided.
Lawful deductions may still be made at this stage, for example:
- Repayment of training costs where contractually authorised
- Recovery of overpayments
- Retail cash shortages
Importantly, while the 10% cap applies during employment for retail shortages, on termination the employer may deduct the full amount owed, provided the deduction is lawful and within time limits.
Withholding final pay without proper authority is one of the most common causes of unlawful deduction claims.
3. Can an employer withhold pay after termination for gross misconduct?
If an employee is summarily dismissed for gross misconduct, they are not entitled to notice pay. However, they are still entitled to:
- Wages earned up to the date of dismissal
- Accrued statutory holiday
Dismissal for misconduct does not permit withholding pay already earned. If a summary dismissal is later found to be wrongful, the employee may pursue a claim for wrongful dismissal and seek notice pay as damages.
If the contract provides for pay in lieu of notice (PILON), and the employer exercises that right, payment must be made strictly in accordance with the contractual terms.
4. Can an employer withhold holiday pay?
All workers are entitled to 5.6 weeks’ statutory paid annual leave per year. Where holiday has accrued but not been taken at the point of termination, it must normally be paid in lieu.
Holiday pay falls within the statutory definition of “wages” for the purposes of unlawful deduction claims. An employer cannot refuse to pay accrued holiday simply because the employee has resigned, performed poorly, or is subject to disciplinary proceedings. This applies equally to workers engaged under atypical arrangements, including those with holiday pay entitlement under zero hours contracts.
Unlawful withholding of holiday pay frequently results in tribunal claims, particularly where multiple deductions form a series.
5. Can an employer withhold redundancy pay?
Where an employee qualifies for statutory redundancy pay, the employer must make payment in accordance with statutory calculation rules.
Redundancy pay cannot be withheld as leverage in a dispute. However, entitlement may be affected where the employee unreasonably refuses suitable alternative employment, or where dismissal for misconduct occurs before redundancy takes effect.
Failure to pay redundancy pay where legally due may result in an Employment Tribunal claim.
6. Can an employer withhold pay as punishment?
Employers cannot deduct pay as a disciplinary sanction unless there is a clear contractual right permitting such a deduction. Financial penalties for poor performance, mistakes or misconduct are usually unlawful.
The appropriate response to misconduct is to follow a fair disciplinary procedure, not to withhold wages. Arbitrary deductions are likely to result in legal challenge.
7. Can an employer withhold bonus pay?
The answer depends on whether the bonus is contractual or discretionary. If a bonus is contractually guaranteed once conditions are met, withholding it may amount to breach of contract and an unlawful deduction of wages.
Even where a bonus is described as a discretionary bonus, the employer must exercise discretion honestly and not irrationally. In some cases, bonuses may become contractual through custom and practice.
8. Can an employer withhold pay for training or uniforms?
Training cost deductions are lawful only if clearly authorised by contract or prior written agreement. The clause must be transparent and proportionate.
Uniform deductions require particular care because of National Minimum Wage rules. If a deduction for uniform or equipment is for the employer’s benefit, it may reduce pay for minimum wage calculation purposes. Even if lawful under the Employment Rights Act, it may still breach minimum wage legislation.
Section Summary: In most real-world scenarios, an employer cannot withhold pay simply because they feel wronged by the employee. Resignation without notice, misconduct, poor performance or workplace mistakes do not automatically justify withholding wages. A clear statutory, contractual or written basis must exist before any deduction is made.
Section D: National Minimum Wage and Enforcement Risk
Even where a deduction is lawful under the Employment Rights Act 1996, it may still create liability under National Minimum Wage (NMW) legislation. Employers must therefore consider two separate but overlapping legal regimes before withholding pay.
1. When deductions breach National Minimum Wage rules
Under the National Minimum Wage Act 1998 and associated Regulations, certain deductions reduce a worker’s pay for minimum wage calculation purposes. If, after a deduction, the worker’s pay falls below the applicable minimum wage rate for the relevant pay reference period, the employer will be in breach.
Deductions most likely to create risk include:
- Deductions for uniforms
- Deductions for tools or equipment required for the job
- Charges for employer-provided items that are for the employer’s benefit
By contrast, some deductions do not reduce pay for NMW purposes, including:
- Income tax and National Insurance
- Repayment of accidental overpayments
- Certain salary advances
- Accommodation charges, subject to strict accommodation offset rules
The interaction between unlawful deduction rules and NMW rules is often misunderstood. A deduction may be permitted under the Employment Rights Act but still unlawful if it results in minimum wage underpayment.
2. Accommodation offset and specific rules
Where accommodation is provided, a statutory accommodation offset applies. Only a prescribed daily amount may be taken into account when assessing compliance with minimum wage legislation. Charging more than the permitted offset may reduce pay below minimum wage and trigger liability.
No similar offset applies to other benefits such as transport, meals, childcare or company vehicles.
Employers should be particularly cautious where low-paid workers are concerned, as even modest deductions can create technical breaches.
3. HMRC enforcement and penalties
Unlike unlawful deduction claims, which are typically brought in the Employment Tribunal, National Minimum Wage breaches are enforced by HM Revenue & Customs.
Consequences may include:
- Arrears repayment orders
- Financial penalties of up to 200% of arrears (subject to statutory caps)
- Public naming under government enforcement schemes
- Reputational damage
In serious cases, criminal sanctions are available, although rare.
4. Broader legal exposure
Unlawful withholding of pay may lead to:
- Employment Tribunal claims for unlawful deduction of wages
- Breach of contract claims in the civil courts
- Constructive dismissal claims where non-payment is serious
- Regulatory investigation in sectors subject to additional oversight
Persistent non-payment or arbitrary deductions can quickly escalate from an internal payroll issue to formal litigation.
Section Summary: Withholding pay is not only a contractual issue. Employers must consider both unlawful deduction rules and National Minimum Wage legislation. A deduction that appears lawful on its face may still result in financial penalties and regulatory action if minimum wage compliance is overlooked.
FAQs: Can an Employer Withhold Pay?
Can an employer withhold pay without notice?
No, unless there is lawful authority. An employer cannot withhold wages that have already been earned simply because no notice was given. If an employee resigns without notice, the employer may have a breach of contract claim, but cannot automatically deduct pay unless the contract expressly permits this.
Can an employer withhold pay if you quit without notice?
No, not for work already performed. Wages earned up to the effective date of termination must be paid. Any financial loss suffered by the employer would normally need to be recovered through a separate legal claim unless there is a clear contractual deduction clause.
Can an employer withhold final pay?
No, unless a lawful deduction applies. Final pay must include all wages due and accrued statutory holiday. Lawful deductions such as overpayment recovery or contractually authorised training costs may be applied, but withholding final pay as leverage in a dispute is unlawful.
Can an employer withhold pay after termination?
No, not for sums already earned. Even in cases of gross misconduct dismissal, wages up to the dismissal date and accrued holiday must be paid. Notice pay may be withheld only where there is a lawful basis for summary dismissal.
Can an employer withhold holiday pay?
No, where statutory holiday entitlement has accrued. Holiday pay forms part of “wages” under the Employment Rights Act 1996. Failure to pay accrued holiday may amount to an unlawful deduction of wages.
Can an employer withhold redundancy pay?
No, where the employee qualifies for statutory redundancy pay. Employers must pay statutory redundancy in accordance with legal calculation rules. Withholding redundancy pay without lawful reason may result in a tribunal claim.
Can an employer withhold pay as punishment?
No, unless there is an express contractual clause permitting financial penalties. In most cases, deductions for poor performance, misconduct or mistakes are unlawful. The appropriate response is disciplinary action, not withholding wages.
Can an employer withhold pay for training costs?
Yes, but only if there is a clear contractual provision or prior written agreement allowing repayment. Even then, the deduction must be proportionate and must not breach National Minimum Wage rules.
Can an employer withhold pay for mistakes?
Only where the employment contract clearly permits this. General deductions for workplace errors are usually unlawful unless expressly authorised. Retail cash shortages are subject to specific statutory limits.
How long can an employer withhold pay?
An employer may continue lawful deductions, such as overpayment recovery, until the debt is repaid. However, any unlawful deduction claim must generally be brought within three months of the deduction or last deduction in a series, subject to the two-year back pay cap in the Employment Tribunal.
Conclusion
The question “can an employer withhold pay?” has a clear starting point in UK law: no, unless there is explicit legal authority. Under Part II of the Employment Rights Act 1996, deductions from wages are unlawful unless they are required by statute, expressly authorised by contract, or supported by prior written agreement.
Employers cannot withhold pay as a form of punishment, leverage in a dispute, or reaction to resignation without notice. Wages already earned must be paid. Final pay must include accrued holiday. Statutory redundancy pay must be made where entitlement arises. Even where a deduction is technically permitted, employers must also assess National Minimum Wage compliance.
Incorrectly withholding pay can result in an Employment Tribunal claim, repayment orders, interest, and in serious cases a claim for constructive dismissal. Where dismissal for gross misconduct is later found to be unjustified, liability for wrongful dismissal and notice pay may also arise.
Before withholding pay, employers should confirm:
- There is a clear statutory or contractual basis
- Any required written agreement exists
- The deduction is proportionate and transparently calculated
- National Minimum Wage rules are not breached
Withholding pay is not a routine payroll adjustment. It is a regulated legal action that must be handled with precision and documentary support.
Glossary
| Term | Definition |
|---|---|
| Unlawful Deduction of Wages | A deduction or underpayment made without lawful authority under Part II of the Employment Rights Act 1996. |
| Wages (ERA Definition) | Broadly includes salary, commission, certain bonuses, holiday pay and other sums payable in connection with employment. |
| Series of Deductions | A chain of linked unlawful deductions for which a claim may be brought, subject to tribunal time limits and a two-year back pay cap. |
| National Minimum Wage (NMW) | The statutory minimum hourly pay rate. Certain deductions may reduce pay for NMW calculation purposes and create separate liability. |
| Effective Date of Termination (EDT) | The legal date on which employment ends. Final pay is calculated up to this date. |
| Retail Worker Deduction Rule | A statutory rule limiting deductions for cash shortages to 10% of gross pay per pay period while employment continues. |
| Overpayment Recovery | The employer’s right to recover accidental overpayments of wages, subject to reasonableness in application. |
Useful Links
| Resource | Link |
|---|---|
| Employment Rights Act 1996 | View legislation |
| National Minimum Wage Act 1998 | View legislation |
| National Minimum Wage Regulations 2015 | View regulations |
| ACAS – Deductions from Wages | ACAS guidance |
| HMRC – National Minimum Wage Guidance | HMRC guidance |
