An employer withholding pay, whether in part or in full, is also known as a deduction of wages. A deduction is when you are paid less than the total amount that you are due.
There are limited circumstances in which an employer can lawfully deduct or withhold your wages, but where these do not apply, you may be able to enforce your rights for full pay.
Employer withholding pay: what is ‘pay’?
Under the Employment Rights Act 1996, the law protects workers from unauthorised deductions from their wages. ‘Workers’ includes employees as well as other individuals who have entered into any form of contract to perform work or services.
The wider statutory definition of wages includes not only salary, but also any sums payable under contract in relation to the worker’s employment, such as bonuses, commission and holiday pay.
It can also include payments that the worker is legally entitled to, such as statutory sick pay, statutory maternity pay or other family leave payments.
However, there are exclusions to the definition of wages. These include an advance of wages, expenses incurred in connection with employment, payments due under a pension scheme, as well as compensation for loss of office or in relation to a redundancy.
In practice, the most common examples of an employer withholding pay are in relation to unpaid bonuses, underpayment of commission, outstanding holiday pay, late payment of salary and a unilateral reduction in pay, where an employer has varied the terms of your contract, more specifically how much you are entitled to get paid, without your consent.
Can an employer legally withhold pay?
Under the statutory regime relating to the protection of wages for workers, an employer withholding pay is only permissible in the following three situations:
- Where it is required or allowed by law, eg for national insurance and income tax deductions, or student loan repayments.
- Where your contract expressly states they can provided you have been given a written copy of the relevant terms or a written explanation prior to undertaking the work for which payment is withheld.
- Where you agree in writing before the deduction is made.
In addition, the statutory protection offered to workers does not extend to overpayment of wages or where a deduction has been made on account of a worker having taken part in a strike or other industrial action.
In all of the above circumstances, you are unlikely to have legal grounds under the 1996 Act upon which to claim an unlawful deduction of wages.
It is advisable however to take guidance on your specific circumstances to understand your legal position and options open to you.
Employer withholding pay: what can I do to resolve this?
If you are concerned that your employer has withheld your pay unlawfully, there are a number of steps you can take.
First, you should check your payslip to ascertain the value and nature of any deductions. Employers are required by law to issue all employees with a payslip. This should show how your pay has been calculated. If you are classed as a worker, you can still ask the employer for a payslip or an explanation of how your pay has been calculated.
Raise your concerns directly with your employer – your line manager or HR for example – on an informal basis to attempt to resolve the issue. Where your employer is withholding pay, there may be a simple explanation, or an error that can be easily resolved.
In the event that you are unable to resolve the matter through informal discussion, you should consider raising a formal written grievance through your organisation’s internal complaints procedure.
Where you remain unsatisfied following the grievance, you may be eligible, under the provisions of the 1996 Act, to make a claim to the employment tribunal for unlawful deduction from wages.
Note that under the Deduction from Wages (Limitation) Regulations 2014, a two-year limit applies to how far back workers can go in making claims for backdated unauthorised deduction from wages for holiday pay.
If your pay issue falls outside these statutory provisions, for example, it relates to expenses or some other form of excluded payment, you may be eligible to bring a claim for breach of contract, although you would need to demonstrate that you are contractually entitled to the sum in question.
It is important to check the terms of any contract and/or any written agreement that you may have in relation to pay. In this way you can seek to establish whether your employer withholding pay has been previously authorised, or whether you have the basis of a tribunal claim.
Employer withholding pay: can I bring a tribunal claim?
Before you can make a tribunal claim you will need to engage in ACAS early conciliation.
If unsuccessful, you can make an employment tribunal claim against an employer withholding pay by submitting an “ET1” form within 3 months less one day.
Where there has been complete non-payment, time runs from the date your wages fell due. Where there has been a deduction from your wages, or a series of deductions, time runs from the date of that deduction or last deduction.
If successful, the employment tribunal will make a declaration that your employer has acted unlawfully, and order them to repay the outstanding amount.
However, in many cases, this is subject to a 2-year cap.
If you are seeking to claim over and above this set limit, or looking to recover money that falls outside the statutory provisions, you may instead look to issue a claim in the county court or high court for breach of contract (annual leave for example would not be considered a contractual right). The time limit for issuing a claim through the courts is 6 years, so this course of action can also be used in circumstances where you have missed the strict tribunal time limit and a contractual obligation exists.
That said, if you opt to sue your employer for breach of contract for non-payment of wages, your employer may seek to counter-claim against you for any losses suffered in consequence of any breach on your part. It is often better, therefore, to bring a statutory claim in the employment tribunal for an employer withholding pay.
Employer withholding pay: retail worker deduction rule
Under the provisions of the 1996 Act, there are special rules for workers in the retail industry, including workers in shops, bars and restaurants. These provide that your employer can make up to a 10% deduction to your wages to cover shortfalls in cash or stock. This must however be made within 12 months of discovering the shortage or deficiency.
The deduction must be no more than one tenth of your gross wages during any single pay period, although further deductions can be subsequently made. Your employer must also give you details in writing of the deduction.
Employer withholding pay: should I take legal advice?
An employer withholding pay can have a significant impact financially.
By seeking early advice from an employment law specialist, you can establish your legal position and the merit of your case. Your legal adviser can also help you to navigate through the practical and legal complexities of resolving the issue, bringing a claim in the tribunal or making a claim against your employer for breach of contract.
Can an employer legally withhold pay?
Generally no unless it is required by law (NI, tax, student loan) or where your contract expressly states they can or where you agree in writing before the deduction is made.
Can an employer withhold pay if you quit without notice?
You are entitled to be paid your wages for the hours you worked up to the date you leave your job. Generally it is unlawful to withhold pay from workers who do not work their full notice unless your employment contract allows the employer to make deductions from pay.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.