Pay disputes at work require swift action on the part of the employer to understand the reason for the complaint, and to identify and rectify any issues or errors. The following guide on pay disputes examines employees’ rights and entitlement to pay and the basis upon which a claim for unpaid wages could be made if a pay dispute is not resolved.
The law on pay in the UK
Employees have the right to be paid their full wages as set out under their contract of employment — whether this is a verbal agreement or in writing — and at the contractually agreed intervals. There are, however, limited circumstances in which an employer can lawfully deduct or withhold wages. Under Part II of the Employment Rights Act 1996 (the ‘protection of wages’ provisions), an employer can deduct or refuse to pay part or all of an individual’s wages if:
- the deduction is required or authorised to be made by statute, for example, income tax and national insurance deductions;
- the deduction is required or authorised to be made under the employment contract, provided they have been given a written copy of the relevant terms or a written explanation of these terms before any deduction is made;
- they have previously agreed or consented in writing to the making of the deduction, although agreement must have been reached or consent given in advance.
In addition to any authorised deductions, there are also certain ‘excepted deductions’ that an employer can lawfully make, for example, where the worker has been overpaid, or involved in a strike or other industrial action, as well as special rules for workers in the retail industry.
Where the total amount of wages paid on any occasion is less than the total amount of wages properly payable by the employer — taking into account the limited circumstances in which authorised or excepted deductions can be made — the amount of the deficiency will be treated as an unlawful deduction of wages. An unlawful deduction of wages claim is essentially where an employer has failed to pay at all or paid less than what the individual is entitled to.
Under the 1996 Act, ‘wages’ are widely defined as ‘any sums payable’ in connection with employment. This includes any fee, bonus, commission, holiday pay or other form of payment, whether payable under the contract or otherwise. It also includes pay they are entitled to under statute, for example, statutory sick pay or statutory maternity and paternity pay etc.
The employment contract should set out legally enforceable terms and conditions that govern the working relationship between the employer and employee, including the right to be paid a salary and other pay entitlements. As such, where an employer fails to pay the contractual entitlement — either at all, in full or on time — this will be classed as a breach of contract. In many cases, this will also be classed as an unlawful deduction of wages, provided the pay in question falls within the definition of ‘wages’ under the 1996 Act.
In some cases, the contract may be silent on certain issues as to pay. However, in addition to those terms that have been explicitly agreed, either verbally or in writing, other terms will arise by implication in the context of the employment relationship. This could include, for example, where there is clear evidence of previous custom and usage, such as an employee’s entitlement to an annual bonus. Certain terms can also be implied by operation of statute, including the right to be paid the national minimum wage or the right to a minimum statutory notice period on termination of employment.
In all cases, where a right to a certain salary or other forms of pay can be proven, the employer has an obligation to meet these payments and discharge any arrears. That said, the manner in which the employee seeks to resolve and address any pay dispute will depend on the nature of the ‘pay’ in question. It will also turn on whether they continue to work for the employer or if a pay dispute has arisen post-termination, for example, for a failure to provide any notice pay.
Employees raising a pay query
Existing employees who believe they have not been paid what they think they are due should in the first instance speak to their line-manager, or someone from HR or payroll, to find out the reasons why.
The employer should take prompt steps to investigate the query. In practice, pay disputes most commonly arise in relation to late payment of salary, outstanding holiday pay, unpaid bonuses and underpayment of commission. Many of these types of dispute will also often occur because of computational errors or administrative oversights that can be quickly and easily rectified without further challenge.
If the employee is not happy with the outcome of their complaint, they may bring a formal grievance in writing, by detailing what monies they believe are owed, and providing the employer with a timeframe within which to remedy the shortfall, typically 7-14 days.
The employee should also provide any documentary evidence in support of their position including, for example, pay slips, time sheets, copies of any correspondence and emails, and bank statements to prove money hasn’t been paid into the account.
On receipt of the grievance, the employer must follow a fair grievance process by investigating the matter, providing the employee with a written outcome, including an explanation of the reasons for any decision. The employer should also provide a process to appeal the decision.
Former employees are no longer in a position to raise an internal grievance over any pay dispute. Instead, pay issues such as unintentional errors or oversights should be brought to their former employer’s attention by contacting someone from HR or payroll, and entering into written post-termination discussions and negotiations to seek to resolve the matter without recourse to litigation.
If raising a formal grievance or entering into post-termination negotiations fails to satisfactorily resolve a pay dispute, the employee may be able to bring a claim against the employer.
Their legal rights and remedies in the context of a pay dispute will depend on the nature of the pay in question. Further, the type of claim available and the manner in which this is pursued will depend on whether the individual continues to work for the employer or whether employment has come to an end.
Unauthorised deductions from wages can provide employees with a statutory basis to bring an employment tribunal claim.
If, however, there has been a computational error by the employer in assessing the gross amount of wages due, any deficiency will not be treated as an unlawful deduction. That said, the employee will still be able to pursue a claim for breach of contract before the civil courts in the event that the matter is not otherwise resolved.
There are also certain payments which are specifically excluded from the definition of ‘wages’, including expenses incurred in carrying out employment. In these circumstances the employer would not be afforded the statutory protections set out under Part II of the 1996 Act, although the employer will still be contractually liable to reimburse the outstanding amount.
If the employment has been terminated, the individual may be able to claim for non-payment of wages or other forms of pay as a breach of contract claim before either the employment tribunal or the courts. This could include a claim for wrongful dismissal where the employer has failed to provide. or pay in lieu of, the contractual or statutory minimum notice period on termination of the employment.
There is, however, a £25,000 cap on the damages that can be awarded in the tribunal for this type of claim, together with a three month time limit.
Resolving pay disputes
If a pay dispute has arisen, it is always best to seek to resolve this informally without recourse to litigation. In many cases, there may be an error or oversight, either on the part of the employer, or because of a misunderstanding of the employee’s contractual entitlement.
The first document to check is the employee’s payslip. Workers have a legal right to be given a payslip. This should show how their pay has been calculated and what deductions have been made. The employer (or payroll team) should be able to explain all calculations and deductions.
The contract of employment should also be referred to, to determine the agreed entitlements and contractual rights to certain types of pay. The staff handbook or written policies on the staff intranet site may also provide further guidance and direction on specific types of pay or entitlements.
Where an error in pay is confirmed, the employer should pay what is owed as soon as possible.
If the dispute cannot be resolved informally, the employee may follow the grievance process. the grievance should outline details of the complaint, including the net amount that they believe that they are owed and the basis upon which this is sought. They should provide the employer with a clear but reasonable timeframe to remedy or explain the shortfall. The employer must handle the grievance fairly and lawfully.
If the pay dispute cannot otherwise be resolved, the employee may seek to bring a claim for unlawful deduction or wages or breach of contract.
DavidsonMorris’ HR specialists support employers with all aspects of employee remuneration and benefits. Working closely with our employment lawyers, we provide comprehensive guidance on how to approach employee entitlements, including resolving pay disputes and negotiating exit agreements, to minimise legal risk while ensuring commercial goals are achieved and employee engagement is optimised. For help and advice, speak to our experts.
Pay Dispute FAQs
Can an employee sue their employer for not paying them correctly?
If an employer has failed to pay someone correctly, they may be able to bring a claim for unlawful deduction of wages before the employment tribunal or sue for breach of contract in the civil courts.
What happens if your employer underpays you?
If your employer underpays you, this can often be resolved internally by reporting the matter to your line manager, someone from HR or payroll. This could be a mistake or administrative oversight. Failing this, you should seek legal advice.
How long does an employer have to correct a payroll mistake?
Employers should resolve any mistakes as quickly as possible once the matter has been highlighted.
Can an employee refuse to work if they haven't been paid?
While a one-off or occasional failure to pay salary is a breach of contract, depending on the facts, it is not generally serious enough to entitle someone to refuse to work, or to resign and claim constructive dismissal.
Last updated: 26 April 2021