Work and money go hand in hand. The fundamental nature of an employment contract is that your workplace gives you money in exchange for your labour. But can an employer withhold pay and stay on the right side of the law?
Regardless of what your contract of employment says about deductions, there are statutory rights in law that offer employees protection from unlawful deductions.
Employer Withholding Pay – UK Law
It might seem unfair for an employer to withhold pay, but are they legally entitled to do so? The answer is yes, but only in some very limited scenarios.
Both employer and employee must know where they stand legally on this topic. Particularly if the working relationship has become strained or broken down. Following the correct protocols when it comes to wages is vital.
The Trust for London has warned that some employers are using unlawful practises to avoid paying full wages. In a study of 2 million UK workers, over £3 million is left unpaid by companies. This is often done in subtle ways so as not to raise concerns. This report, called Unpaid Britain, (November 2017) raises some extremely worrying statistics.
When Can a Company Withhold Wages?
All parties need to be fully aware of the circumstances in which wages can be withheld by employers. There are lawful reasons why a company can choose to make deductions from salaries. However, anything outside of these is deemed illegal and a breach of regulations.
Staff are protected by the Employment Rights Act of 1996. Part of this Act ensures all employees get their full and fair pay.
There are, however, some statutory reasons for withholding payment:-
- When the reason for withholding pay is a lawful one such as National Insurance contributions, tax purposes or any student loan repayments.
- There is a clause in the contract specifying such a scenario. This must be legal and compliant with UK laws.
- The employer has an agreement in place with the employee. Again, this should be legal.
- Due to a statutory requirement to pay a public authority, such as a court.
- After strike action which the employee participated in.
- There had been a previous wage mistake and a deduction has been agreed upon.
All of the above scenarios are acceptable for any sort of payment being withheld. An employer has no right to withhold pay for reasons not outlined above.
It’s important to note that if you were overpaid by your employer, they can’t withhold wages without prior notice or agreement.
Employers must be compliant with the Employment Rights Act of 1996 when making wage deductions. This is in place to make sure employees are treated lawfully and fairly.
When deductions are made from wages and the reason is not within one of the limited scenarios above, it becomes an unlawful wage deduction.
If you feel your wages have been altered or there have been other changes not agreed to, you can lodge a grievance. If this doesn’t work, you may be able to take your employer to a tribunal. It is essential to check for any deduction clauses within your contract too.
But what factors make wage deductions unlawful?
National Minimum Wage
There are National Minimum Wage protections in place to ensure an employee’s wages never fall below this rate.
There are some situations where wages can go under this minimum but they are very limited.
Below are the only reasons an individual can receive less than the minimum wage:-
- Due to tax or national insurance deductions.
- A situation which the employee is liable to pay for.
- Being given an advance in their wages.
- Repayment of a student loan.
- Repayment of a mistaken overpayment.
- Accommodation is provided by the employer.
- Pension or subscription payments that the employer signed up for.
Wage Deduction FAQs
If you are an employee worrying about pay deductions, then here are some common scenarios where employers may threaten to withhold pay.
We’ll outline your legal rights, and whether monies your employer threatens to withhold are unlawful deductions.
Can an Employer Withhold Pay if You Quit Without Notice?
Sometimes, relationships in the workplace break down beyond reconciliation. When this happens, employees may quit a job without notice.
Even if an employee has failed to work their notice period, they should still receive wages for all the hours they have worked.
This should take into account any accrued holidays as well. Withholding pay as a means to have them work out their notice is unlawful.
Can My Employer Take Money From My Wages for Mistakes?
There has been a mistake at work and the tills do not balance at the end of your shift, what happens next? This is just one example of an error that could lead to an employer taking some of your wages as a result.
However, there are strict rules for employers to follow if mistakes in retail are made. They should never deduct more than 10% of their gross pay for each pay packet. This 10% can be deducted from the employee each week or month until the mistake is cleared.
You may also face a disciplinary process if the error proved costly.
See Also: Can my employer deduct money from my wages?
Can an Employer Withhold Pay After Termination?
Deciding to end an employee’s contract is a difficult time. However, an employer can’t withhold pay because an employee has been terminated.
This means employers cannot legally withhold pay after dismissal. Employees have the right to be paid, in full, for all hours worked. They should also be paid for any bonuses during this time and for any unused holidays. Some employment contracts will stipulate bonuses will not be paid in the event of dismissal. Check your contract to see what you are entitled to.
Employees may seek legal advice if they feel they are victims of unlawful deductions.
What to Do if Money Has Been Deducted Without Your Consent
If you have had money deducted unlawfully, then there are protocols to follow. You are entitled to your pay regardless of the situation unless a deduction is for a valid reason.
As an employee, you have some options available if you find yourself in this situation.
- You can open a claim with an Employment Tribunal to start legal proceedings against your employer.
- You can pursue a right to compensation for any monies taken unlawfully.
- This should be done within 3 months of the deduction being made. If there was more than one deduction, the last date it happened can be used.
- Before taking the legal route, you could try formally requesting repayments to be made. Often, an employer will prefer to settle out of the courts but sometimes this option isn’t viable.
ACAS can offer advice on next steps to take to recover monies your employer has withheld.
When an unlawful deduction has taken place, an employee has the right to pursue legal action. This involves starting court proceedings via an Employment Tribunal.
Once an individual is sure that the deduction was not covered by Uk laws, they can open a case against their employer. This process is both stressful and costly for companies and can cause a great deal of business disruption too.
As in most cases, employees should read their contract of employment carefully before signing it. This can prevent any nasty surprises from cropping up, hidden within the clauses. It is also important to be completely clear on UK employee rights which can be found in the Employment Rights Act of 1996.