Employees are protected by law from unauthorised payments being taken from their pay. The rules on unlawful deduction of wages relate to underpayment or non-payment of an employee’s wage or salary without permission or consent.
What is unlawful deduction of wages?
Whether a deduction from wages is lawful or permissible will depend on the specific circumstances and your contract terms and conditions. There are instances where an employer can make lawful deductions from pay, but you should be made aware that the deductions will be made. Common examples of permissible deductions could include:
- Deductions required by law such as income tax, student loan repayments and those ordered by court
- Pre-agreed deductions such as repayment for uniform or travel
- Repayment of overpaid wages
- Time off work for strike or industrial action
- If you work in retail, a bar or restaurant your employer can lawfully deduct from your wages to cover damaged stock or mistakes and shortfalls in till money, provided no more than 10% of your pay is taken before tax on each payday the deduction is made, your employer has taken the money within 12 months of noticing the shortage, there is a written agreement to this effect and you are given details in writing of the deduction on each pay day your employer takes money.
My employer has made deductions from my pay – what should I do?
If your wage is less than expected, you should first take steps to check why you have been paid the lesser amount.
Start by checking your payslip. All workers should receive a payslip which sets out clearly your gross and take-home pay and how your pay has been calculated, including any amounts and reasons for variable and fixed deductions.
When checking your payslip, you should look at:
- Any discrepancies in bonus or commission payments against your expected amount
- The rate of pay – is this per your contract or applicable statutory minimum level?
- If you have been paid any sick pay, parental or maternity leave or holiday pay correctly
- Any deductions made by your employer and whether these match up to any obligations you have such as repayment of a travel loan
- Any discrepancies in the number of hours you have been paid for and the number of hours you have actually worked eg overtime
If you are still not satisfied with how your employer has calculated your pay, you should speak to your employer or someone appropriate within your organisation, such as your line manager or someone in the HR or payroll team. Show them evidence to support your concerns, such as the written agreement between you and your employer about an overpayment arrangement.
Ask for the payments to be explained and raise any queries you may have. You are looking to understand the reason for the amount of pay. For example, your employer would be allowed to deduct a relevant amount from your pay if it is allowable under your contract, it was agreed in writing beforehand, you were overpaid in error, if it is a legal requirement such as income tax or if you were absent due to taking strike or industrial action.
In many cases, there may just be a misunderstanding, miscommunication or oversight which can be quickly resolved without issue or dispute.
Where your employer has made a mistake, they should rectify the issue straight away. You should not have to wait for the next payday to be paid any monies owed, unless you are happy to agree to this.
If you cannot agree on the discrepancy with your employer, you should look at your organisation’s complaints procedure and whether you will need to raise a grievance or whether you will need to consider bringing a claim to the employment tribunal.
Can I make a tribunal claim against my employer for deduction of wages?
Employees are protected from unauthorised deductions being taken from their pay or wages. Under employment law, non-payment of wages is treated as a deduction from wages.
Where the matter cannot be resolved informally with your employer or through an internal complaints or grievance procedure, you may be eligible to bring a claim in the employment tribunal for unlawful deductions from wages.
You can still be employed while making a claim.
The claim has to be started within three months less one day of the date when the payment was due, or the date of the last payment if there are a number of payments due.
You can seek a declaration, payment or repayment of the unlawfully deducted amount and in some circumstances, unlawful deduction of wages compensation for further financial loss. You can only recover monies from the two-year period preceding your claim.
You cannot claim for all types of payment as wages. This includes expenses or redundancy payments.
The types of wage disputes you can claim for include holiday pay, sick pay and bonuses where you have either not been paid or there have been deductions from your full earnings and entitlement where your employer had no right to deduct from you.
Some deductions will be permissible deductions, these could include:
- legal deductions, such as tax and national insurance
- deductions agreed in your contract
- deductions not in your contract that you have agreed with your employer
- deductions to repay the employer for having overpaid you wages in the past
Evidencing the unlawful nature of the deduction will be critical to the strength of your claim. This includes documents such as emails or signed contracts that prove your case, such as payslips, timesheets and your bank statements.
To claim unpaid wages, you will need to show:
- You have notified ACAS of the dispute under the early conciliation rules
- You qualify as a worker
- The monies owed are eligible to be claimed in the employment tribunal
- You are entitled to the monies being claimed
- Your employer acted unlawfully in withholding your pay or the deductions were unauthorised
One of the considerations when deciding whether to bring a claim is the financial stability of your employer. If your employer is facing financial difficulties such as insolvency, you have to assess whether you would receive the monies under the tribunal award even if you won.
What counts as ‘wages’ in an unlawful deduction claim?
Wages can include a broad range of payments that relate to your employment, but there are also specific exclusions.
Wages would ordinarily include:
- Statutory payments eg maternity pay
- Holiday pay
- Bonuses & commissions
Note that for bonuses, the amount should be quantifiable and not discretionary otherwise you may have to make a claim for breach of contract under a different legal procedure.
Expenses, pension scheme payments or redundancy payments for example would not qualify under an unlawful deduction from wage claim.
You may also be able to claim for pay discrepancies relating to other types of entitlements under different legal procedures. For example, if you are not paid your full notice entitlement, this could give rise to a claim for wrongful dismissal as a breach of contract for unpaid notice, rather than unfair deduction from wages.
Can I make a claim for redundancy pay?
If you believe you are owed redundancy pay, you may be able to bring a claim for the payment owed if you can show:
- You were employed by the organisation for at least 2 continuous years,
- You have been dismissed due to a genuine redundancy situation, and
- You had refused an offer of alternative employment with your employer on reasonable grounds.
Other issues relating to the redundancy may give rise to other legal actions such as unfair dismissal if you believe the selection process was unfair.
What should I do if I haven’t been paid the correct holiday pay?
All workers are entitled to 5.6 weeks per year to take off work for holiday leave, calculated relative to the number of days a week you work (pro rata).
Holiday pay should be paid at the same rate as when you are in work. Irregular hours should use a mean average calculation over the 12 weeks leading up to your period of leave to determine your rate of pay.
If you think you haven’t been paid the correct holiday pay, you will need to gather evidence to support your concerns, for example, to show you were in work and did not take the time off and that you were not paid the holiday pay.
If you are unable to resolve the issue informally, or through your employer’s internal grievance process, you may be able to bring a tribunal claim against them.
I’ve been overpaid – can my employer claim it back?
If you have been overpaid in error, your employer has the right to claim this back from you.
Your employer should notify you as soon as they discover the error to agree repayment arrangements.
If the mistake was a one-off, you could agree to a deduction from your next pay or you could agree to pay it straight back directly.
In instances where multiple overpayments were made, or the overpayment was not recent, your employer is expected to act reasonably and fairly in claiming the money back, which could include using a payment plan.
In rare circumstances, if you can show the overpayment was not your fault and you were led to believe by your employer that you were entitled to the extra money, which you had then in good faith, spent (i.e. ‘changed your position’), you may be able to seek to keep some or all of the money.
DavidsonMorris can help if you have any concerns about unauthorised deductions or non-payment of wages. Contact our employment lawyers for advice.