Unlawful Deductions of Wages
Understandably, we all get concerned if we aren’t being paid the right amount for the work we do. Occasionally, employers can pay us too little (or sometimes pay us too much). Where an employer fails to pay your wages properly, you may have a claim for what is known as “unlawful deductions from wages”.
In order to understand this, we first need to look at what wages are, and what counts as a deduction.
What are wages?
Wages are the pay you are entitled to from your employer for the work you do.
Wages include:
- Your salary
- Any fee, bonus, commission or holiday pay which you are entitled to in connection with your employment including contractual maternity/parental pay.
- Statutory sick pay
- Statutory maternity pay, statutory paternity pay, statutory adoption pay, statutory shared parental pay, statutory parental bereavement pay and statutory neonatal care pay. These are sometimes referred to as family- leave related payments.
- Qualifying tips, gratuities and service charges allocated to you
- A guarantee payment
- Payment for time off which you are entitled to by law
- Payment for time off for carrying out trade union duties
- Pay whilst you are on suspension on medical or maternity grounds
Your employer must also pay you your normal pay whilst you are working your notice. Special rules on notice pay apply during maternity leave.
A payment which your employer informs you must be, or may have to be paid back, for example a loan or a bonus that is subject to clawback is not a payment of wages.
Payments of expenses, payments made for a pension, allowance ;(in most cases) or gratuity for a loss of office and redundancy payments are also not classed as wages.
What are Deductions?
A deduction of wages is when your employer pays you less than you are entitled to.
For there to be a deduction you must have been entitled to the payment. It cannot be a discretionary payment such as a discretionary bonus. If a discretionary payment is not paid (and it is genuinely discretionary) this will not amount to a deduction of wages.
If the payment is conditional, and that condition has not been met, those wages will not be due to you and there will not have been a deduction of wages. For example, a flight attendant receiving a flying allowance when working on flights, but not receiving the allowance because the flights were grounded, would not amount to a deduction of wages.
Lawful deductions of wages (including Overpayments)
Some deductions from wages are lawful. If the deduction is required or authorised by law (for example tax and NI), the deduction was agreed in the employment contract (for example pension contributions), or the employee has given written consent to the deduction (for example where the employer made an overpayment and the employee agrees to pay this back in instalments), the deduction will be lawful. It is therefore important to check your employment contract to see what has been agreed between you and your employer.
Most contracts contain a term that if your employer makes an overpayment, they will be entitled to deduct any overpayment from you (usually from future wages). An overpayment can include, for example, a payment made as a result of an administrative or payroll processing error or a mistake as to the hours worked.
Your employer should act as quickly as possible once they realise they have overpaid you and notify you of the overpayment. The repayments required should always be reasonable and should not place you in any financial hardship. If your employer is asking for a repayment that means you are unable to meet your living costs, you should speak to them to agree on a manageable repayment plan. You can seek specialist debt advice if necessary.
If your employer has taken a long time to make you aware of the overpayment, in certain circumstances, you may be able to challenge the deduction and argue that the overpayment doesn’t need to be repaid. For example, if:
- the overpayment was not your fault, and you genuinely didn’t realise you had been overpaid, and
- you have honestly relied on the overpayment and have spent the money, and
- It would therefore be unjust to have to repay the money.
You may also not need to repay in circumstances where you asked your employer about the overpayment and your employer told you that your pay was correct and you relied on this statement and spent all /some of the overpayment. Your employer may then be “estopped” from claiming it back.
This is a complex area of law. You should seek legal advice if this applies to you.
Unlawful deduction of wages
An unlawful deduction of wages will occur when an employer pays you less than the total amount of wages properly due to you and there is no lawful reason for the deduction.
Examples of unlawful deductions of wages
If your employer has made a deduction from your wages for one or more of the following reasons, this is likely to be an unlawful deduction of wages:
Mistakes in contracts of employment
If your employer has made a mistake by stating a higher wage in your contract which means they have overpaid you, they cannot usually make a deduction from your wages to recover the overpayment from you. You may also be entitled to continue receiving the higher salary.
Reductions in pay
If your employer reduces your wages below what has been agreed in your contract of employment without your consent or a provision in the contract enabling them to do this, this will be an unlawful deduction of wages. Check your employment contract carefully to make sure it does not allow your employer to do this.
Late payment of wages
Late payment of wages, or late payment of part of your wages counts as a deduction of pay. You cannot be dismissed for complaining about late payment of wages as you have a statutory right to be paid and cannot be lawfully dismissed for asserting a statutory right.
If your employer pays your wages in full, but late, and you incur losses as a result, for example, bank overdraft charges and you make a claim to the Employment Tribunal, the Tribunal may decide your employer is responsible for reimbursing you for those charges.
Refusal to pay for annual leave or notice pay on termination of employment
You cannot be paid for accrued but untaken annual leave unless your employment is terminating. It is quite common for there to be a dispute over the amount of annual leave that has accrued when an employee leaves employment, especially if the employee has been on periods of parental leave or sick leave. A refusal to pay properly owing annual leave would be an unlawful deduction from wages.
Refusal to pay Notice pay on termination of employment can also be an unlawful deduction from wages.
Deductions from SMP
You must receive the full amount of SMP from your employer. Even if you owe your employer money (perhaps for example because of an overpayment) they cannot claw this back from SMP. They will need to wait until you return to work and then recoup this from your normal salary.
FAQs
My employer says that they have overpaid my SMP and they intend to take this out of my next month’s SMP. I won’t be able to manage my bills if they do this.
Family leave related payments are wages (note Maternity Allowance is not wages). Overpayments of wages are made when your employer has made an error in calculating how much to pay you. If an employer has previously miscalculated and overpaid statutory maternity pay or other family leave related pay, they can deduct the overpaid amount from future payments without that being considered an unlawful deduction of wages. However, this only allows the employer to correct the overpayment and does not give them the right to reduce the total amount of statutory maternity pay or other family related pay. You must always receive the full statutory amount for your leave.
They should also seek to agree with you how the overpayment will be deducted e.g. an amount per month for a period of time if paying back a lump sum would cause you difficulties. In this case, as you won’t be able to manage your bills, your employer and you should agree a sensible repayment plan that allows you to pay back any overpayment over a period of weeks / months.
I am a worker. Does the protection from unlawful deductions or non-payment of wages apply to me?
Yes. Protection from unlawful deductions or non-payment of wages extends to all workers and employees. Importantly, there is no minimum length of service required to make a claim for unlawful deduction of wages.
My employer has said that they will be taking money from my next pay check because payroll made a mistake 6 months ago. This seems so unfair. Can I bring a claim?
If your employer threatens to make a deduction from your wages, you should speak to your employer to try to understand how much will be deducted and why. You need to wait until the deduction has been made before you can make a complaint to the Employment Tribunal. You may be able to argue that you have honestly relied on the overpayment and have spent the money such that to return it would be unjust. Seek legal advice.
I was eligible for enhanced / contractual maternity / shared parental pay but I am not returning to work. My employer has now said I need to repay the money, and that they will deduct some of it from my accrued annual leave. Is that legal?
Enhanced maternity or family leave pay terms and conditions sometime include a repayment requirement or a clawback clause. This means if certain conditions are not met, such as returning to work for a specified period after your maternity or family leave, your employer may be able to “claw back” or require repayment of some or all of the enhanced element of the maternity or family leave pay. You will need to look at the specific rules that apply to you. You need to have given your prior agreement in writing for any repayment obligation to your employer to be enforceable. This may be covered by a deductions clause in your employment contract.
Your employer cannot claw back Statutory Payments such as SMP, Statutory Adoption Pay or Shared Parental Pay.
If your employment contract or any other document you have signed as part of your employment does not have clawback or repayment provisions then your employer cannot require repayment of your enhanced maternity or family leave pay. This would then potentially be an unlawful deduction from wages.
If you have given written agreement to the clawback provision and your contract includes a deductions clause your employer may be permitted to deduct the money from any pay due to you including payment for accrued annual leave. The timing for repayment should also be made clear. If you do owe the money, check what your contract says about how and when you need to pay your employer back. Your employer is not allowed to take money out from your pay unless your contract says they can, even if you do owe it.
I want to bring a claim for unlawful deductions from wages. What do I need to do?
A claim for unlawful deductions must be made within 3 months less one day of the deduction, or the last deduction if there is a series of deductions
If you believe your employer has made an unlawful deduction of wages, you should raise this with your employer and try to resolve the issue with them. Always check your employment contract to see whether there are any relevant provisions. You can also contact us for advice.
If you agree the amount that has been overpaid / you need to repay, you can try to negotiate a repayment rate that is manageable for you. Seek advice if you need from a debt advice agency.
If matters are not resolved you should raise a grievance by submitting a formal, written complaint.
If the issue remains unresolved, you can make a claim in the Employment Tribunal or the County Court for an unlawful deductions of wages. You must bring your claim in the Employment Tribunal within 3 months less one day of the last deduction. In order to bring a claim in the tribunal, you will need to commence Early Conciliation.
This advice applies in England, Wales and Scotland. If you live in another part of the UK, the law may differ. Please call our helpline for more details. If you are in Northern Ireland you can visit the Labour Relations Agency or call their helpline Workplace Information Service on 03300 555 300.
If you have further questions and would like to contact our advice team please use our advice contact form below or call us.
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