Unlawful deduction from wages

Employment law- unlawful deduction of wages

What is an unlawful deduction from wages?

If your employer has failed to pay you, or paid you less than you are entitled to, you may have a claim for an unlawful deduction from your wages. The deduction will be unlawful if any of the following applies:-

  • it is not required or authorised by legislation;
  • it was not authorised in your contract of employment;
  • it was not consented to by yourself in writing before it was taken.

There are some limited exceptions where a deduction will be lawful, such as if you were previously overpaid or where you have taken part in a strike or industrial action.

If you work in the retail industry or in a restaurant, your employer can take up to 10% of your gross wages to cover any shortfall in your till. They may, however, then make deductions over a course of many weeks/months, as long as they don’t take more than 10% of that pay period. If you leave employment, they are then allowed to deduct the full outstanding amount from your last pay check.

What counts as “wages” for the purposes of an unlawful deduction claim?

Wages are widely defined in the Employment Rights Act and include sums that are payable to the employee in relation to their employment. The following are examples of ‘wages’:

  • any salary, holiday pay, bonus or commission whether contractual or otherwise;
  • pay that you are entitled to under statute (e.g. statutory sick pay or statutory maternity, paternity, adoption or shared parental pay);
  • statutory payments that are paid in lieu of wages (e.g. for time off to look for work, guarantee payments, time off to go to antennal payments or for trade union duties;
  • payment of “protective awards” for failure of an employer to adhere to minimum consultation time periods.

Any claim for wages must be for a specific and quantifiable sum of money. If the payment is uncertain, and not quantifiable (or is a general sum claimed by way of damages), then the claim will not be able to be made in the Employment Tribunal, but will need to be  brought in the County Court, or High Court instead.

Bonus payments

Please note that in order to claim bonus payments as an unlawful deduction of wages claim, the amount should generally be ascertainable and easily quantifiable, for example, through set performance targets and achievements. If you are claiming a bonus that is entirely discretionary in nature and one that cannot easily be referred back to a set formula, then such a claim would need to be one of “breach of contract” instead, which is a different type of claim.

What is not covered?

There are also specific exclusions to the definition of ‘wages’, including the following:

  • an advance of wages by an employer, or where a loan is taken from the company;
  • expenses incurred in connection with employment;
  • payments due under a pension scheme or in connection with retirement;
  • compensation for loss of office or in relation to a redundancy.

If the sum that you are due falls within one of the above exclusions, you may be able to, instead, make a claim for breach of contract in the employment tribunal or county court. You would need to be able to show that you have a contractual entitlement to this amount, or that the entitlement is implied.

What are the steps to make a claim?

If you are owed sums from your employer, the best way to retrieve this is to lodge a claim with the Employment Tribunal or County Court (after first having tried to recover the same either directly or via solicitors threatening legal action).

How long do you have to bring a claim?

Claims brought by former employees for the recovery of damages can only be brought in an Employment Tribunal if they arise or are outstanding on the termination of their employment.

In order to bring a claim in the Employment Tribunal, you must submit an “ET1” within 3 months less one day from the last day that there was an unlawful deduction of payment.  It is now mandatory to go through ACAS’s early conciliation scheme before you can submit a claim to the tribunal.

The starting day of the time limit depends on which kind of deduction there has been:

  • for a deduction or shortfall of wages due, the time limit starts running from the date on which payment was due;
  • where there has been no payment at all, the date runs from when the contractual obligation to the payment arose;
  • where there has been a series of deductions, the time limit starts running from the last deduction or payment in the series.

A claim for breach of contract in the civil courts, however, has a time limit of six years from the breach (i.e. the non-payment).

Please note that a gap of more than three months between non-payments or underpayments of wages breaks the ‘series’ of deductions for the purpose of bringing an unlawful deduction from wages claim.

What if you are not paid you salary for the month, whilst you are still working?

Technically speaking a failure to pay wages would be in breach of contract and as such an unlawful deduction. However, a one-off breach will not normally justify resignation and a claim for constructive dismissal. At first instance, you should raise a grievance with your employer to try and resolve the matter. If you continue to not being paid, this will almost certainly go to the root of the contract and entitle you to take action.

What about non-payment of notice?

A claim for unpaid notice or pay in lieu of notice should be made as a breach of contract claim rather than one for an unlawful deduction from wages.The breach of contract claim is otherwise known as wrongful dismissal. Such claims can be made to the employment tribunal where you are claiming compensation up to £25,000. If the sum is higher than this, it would need to be made in the court. You should note that the time period to make a claim in the tribunal is much shorter (only 3 months from the date the payment is due) whereas you have a period of 6 years to make the claim in the court.

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