Peninsula Group, HR and Health & Safety Experts
(Last updated )
Peninsula Group, HR and Health & Safety Experts
(Last updated )
Employers may need to make a decision on withholding pay. Read how to make deductions to wages lawfully and without ruining employee relations.
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Sometimes, you might have to deduct pay from your employees.
Your staff have a right to receive payment for all their work hours. But there are some circumstances where you can withhold wages, provided you follow legal means.
You could find yourself facing claims of illegally withholding pay if you don’t follow the rules.
Read about the rules of withholding wages. And the steps you need to follow when deducting employees’ wages.
Yes, but only in certain circumstances.
Employers not paying wages, in UK law, can be legal. But in most cases it’s unlawful, and rarely considered normal business practice.
The Employment Rights Act 1996 (ERA) outlines the rules on unpaid wages in UK law.
There are situations which allow employees to make deductions to wages. Here, withholding wages laws allow employers to deduct pay if:
You should discuss with your staff if you decide on making deductions. According to ACAS, withholding wages or payment reductions shouldn’t go below the National Minimum Wage (NMW).
Deductions can only take the employee’s wages to below the NMW in certain circumstances. They are:
In some situations, you might find an employee owes an employer money. This can happen because of overpayment in wages.
You have a right to deduct wages after an overpayment, even if comes from a previously agreed contract term. Here, employers can refuse to pay employees their full wages.
But you must explain the overpayment situation to staff before making any deductions. Depending on the amount owed, you might need to create a payment plan with them to pay back the amount.
Overpayment of wages isn’t the employee’s fault and they shouldn’t be put in difficult financial situations to repay the money owed.
It’s common for employers to deal with staff members leaving the business. But what do you do if they leave without serving their notice period?
Some employers consider withholding pay to force the departing staff member to work their notice period, but employers withholding wages is illegal—unless the employment contract states you can.
Employees are entitled to their wage payment after leaving. They should receive payment for all the hours they accumulated, up until the moment they leave.
If they leave before you agreed, they’re still entitled to pay until the last day they worked.
It’s illegal to deduct wages because of mistakes during work. It’s only legal to pay less for mistakes if the job is incentive-based.
Deductions should only usually occur in retail environments when there has been a shortfall in till calculations. However, you can only deduct 10% of their gross pay per period, until the total amount is repaid in full. Otherwise you could face legal action against non-payment of salary.
Instead of withholding pay, you should consider a disciplinary process if mistakes have caused significant issues for the company.
If it’s a one-off, or occasional issue, it might prove to be a hassle to raise a claim for not being paid for work done.
Not being paid by their employer is, fundamentally, a breach of contract. And without payment, you will quickly damage your relationship with your staff.
Staff could resign, and claim constructive dismissal, if there are regular issues with pay. And this can lead to more than just lost respect. Courts who find you guilty of withholding wages can lead to costly penalties to your business.
If you decide to end an employee’s contract, you don’t have a legal right to withhold pay. Even if they quit and they owe you money, you cannot remove any from their wages.
And if workers feel they are not being paid correctly by employers, they could raise concerns of unfair deductions from pay to tribunals.
To make any kind of deduction to wages, you must comply with the law.
Failing to make these withdrawals correctly can lead to legal action against employers not paying salaries. And going to employment tribunals for unpaid wages can cause major business disruptions and costly legal fees.
Peninsula offers expert employment contract and documentation services for all types of business. Our expert HR consultants deal with all payment, wage issues, and can build contracts that suit your business needs.
Get expert advice on rules for employment contracts with our team today. Give us a call on 0800 028 2420.
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