Unlawful Deduction of Wages

Last Updated: 16th February 2021

Unlawful Deduction of Wages – 8 Important things you need to know before making a claim

What is an unlawful deduction of wages?

Deductions from wages can only be made for one of two reasons;

1. If the deduction/s must be made by law – for example, the deduction of tax and/or National Insurance would be deductible by statute.
2. Or, if the employee has given their permission for the deduction/s to be made.

So, if you are asking yourself ‘can my employer make deductions from my wages?’, the answer is yes, but only if those deductions fall within these two legal stipulations.

And by extension any other deduction made will be unlawful.

THE LAW: Unlawful deduction of wages is governed by Sections 13-27 of the Employment Rights Act 1996.

Are you eligible to bring a claim in the Employment Tribunal?

If you are either an ’employee’ or ‘worker’ you can advance a claim for unlawful deduction of wages at the Employment Tribunal.

In this area of employment law, even if you are classed as a worker, you enjoy the same rights as an employee. If the person who pays your wages makes an unlawful deduction, you can still rely on the Employment Rights Act 1996.

Unfortunately, if you are self-employed then you would probably need to bring a claim in the County Court. You can find more details of this via moneyclaim.gov.uk

What are ‘wages’?

The Law

The Legal definition of wages is:

Wages, therefore, covers a variety of payments that you, as an employee/worker, are entitled to receive. 

Obviously, this includes normal salary or wages, but also extends to bonuses and commission (even post-employment commission).

Importantly, it also applies to other statutory payments to which employees/workers are entitled. For example:

• Statutory sick pay
• Statutory holiday pay
• Statutory maternity pay

Wages also covers payments for time off work for which you are entitled to be paid. For example, you are entitled to be paid for time taken off to attend antenatal appointments.

So if our employer had deducted any of these types of payments from your wages, you can ask the employment tribunal to help you get paid what you are owed.

What’s not covered by the definition of wages?

Certain types of payments are not classed as wages. Some examples:

1. Expenses
2. Redundancy Payments
3. Payments relating to share schemes
4. Payment in lieu of notice (PILON)

Expenses: Expenses are not paid in connection to your employment and therefore are not classed as wages However, if your employer has refused to pay you outstanding expenses, you could consider bringing a breach of contract claim in the tribunal (if your employment has ended) or possibly in the County Court.

Redundancy Payments; Whilst such payments are not classed as ‘wages’, if your employer has failed to pay your redundancy payment, you can make a claim under s.164 of the Employment Rights Act 1996.

Payments relating to share schemes: If you are owed money relating to a share scheme, your claim for such money would normally be be brought as a breach of contract claim as opposed to an unlawful deduction from wages claim.

Payment in lieu of notice (PILON): Such payments do not constitute wages as they are not payments contractually due in respect of ‘the provision of service’ during your employment.  A claim for unpaid PILON should therefore be brought as a breach of contract/wrongful dismissal claim.

However, if your wages over a period of garden leave have been docked, you can pursue an unlawful deduction from wages claim.

Are bonuses wages?

Well, it depends!

If you have not been paid a contractual bonus, then you can make an unlawful deduction from wages claim.

With discretionary bonuses, it is not so clear cut and depends upon the circumstances and the terms of the bonus scheme. In such cases you should probably seek legal advice, as these types of claims can be complex.

What about tips and gratuities?

If you work in the service sector it’s likely that you are paid tips, gratuities or a share of tronc.

Where your employer attempts to keep such payments from you, you can bring a claim for unlawful deduction from wages.

Your tips, gratuities or share of tronc form part of your wages and since the law changed in 2009, they cannot be used by your employer to meet their National Minimum Wage obligations.

What if your employer has paid you late?

This is a difficult one. Of course, you still have the right to bring a claim, because wages are defined as payments that are properly payable “to the worker on that occasion” (Section 13(3) of the Employment Rights Act 1996). In other words, as soon as the wages are overdue, you can claim.

However, such legal action may be a waste of time as, by the time the matter reaches the Employment Tribunal, your employer will normally have paid up! And as the Employment Tribunal cannot order an employer to pay sums which have already been paid, such legal action is unlikely to achieve anything. 

In such circumstances you may instead want to consider resigning due to your employers persistent late payment and consider bringing a constructive dismissal claim instead (if you have more than 2 years’ service).

Notwithstanding this, the Employment Tribunal will not be impressed and can order the employer to pay the employee any consequential loss, such as bank charges etc.

What length of service do you need to make a claim for unlawful deduction of wages?

You do not need to have been employed for a particular period of time in order to bring an unlawful deduction from wages claim.

And because you can bring such claims whilst remaining employed, the unlawful deduction of wages regime is a very useful tool for employees who just want a third party to decide whether they are owed wages, but who do not want to resign. This is in contrast to Breach of Contract claims which can only be brought in the Employment Tribunal once your employment contract has been brought to an end.

Do any time limits apply?

You must commence your claim for unlawful deduction of wages to the Employment Tribunal within:

• 3 months of the date of the deduction

Or, within

• 3 months of the last in the series of unlawful deductions

How far back can I claim?

In 2015, a backstop was put in place in respect of unlawful deduction from wages claims.  This means that, whereas you used to be able to claim for wages going back up to 6 years, you are now limited to only 2 years.

Will my ability to pursue a claim be effected by absence from work?

The answer is it depends on what type of employee you are. 

If you are an employee who is paid on an hourly rate basis, or possibly an employee who is a piece worker (i.e. someone who is paid for the amount of output they produce) then the answer is potentially yes as there is a general presumption that you must provide your employer with certain ‘consideration’ (or work) in order to be owed wages.

However, if you are an employee who is paid a salary then, whether or not you are entitled to be paid during absences, depends upon whether or not you are voluntarily absent or whether your absence was forced upon you.  

Absence from work due to illness

In the case of absence from work due to illness, the presumption is that if you are a salaried employee, you should be paid your normal salary.  

As such, employers normally ensure that payments during sickness absence are covered in the employment contract. Normally, employers will specify limits on sickness payments, for example, they will only pay you statutory sick pay or full pay for 12 weeks and then half pay for 12 weeks and SSP thereafter.

What if I have been sent to prison?  

Applying the voluntary/involuntary absence rule, it is likely that the Employment Tribunal would find that by allowing oneself to be put in prison, you are voluntarily absent from work. In such circumstances, in the absence of a contrary contractual right, you are not likely to be owed your normal wages if incarcerated.

What’s not protected under unlawful deduction of wages legislation?

Overpayment of wages or expenses

You cannot bring a claim against your employer for deductions made by them in relation to the overpayment of your wages or expenses.  

If your employer believes they have made an overpayment to you in relation to your wages or expenses, and they deduct such sums from your salary, the Employment Tribunal would have no jurisdiction to deal with any resultant unlawful deduction from wages claim you may wish to bring.

Payments to a public authority

The same applies in relation to any money which your employer deducts in order to forward to a public authority. Examples of this include:

• Income Tax and National Insurance; or
• Child Support deductions 

Attachment to earnings orders

If, for example, a third party has a County Court Judgment against you and they ask your employer to pay them directly, then the Employment Tribunal will not be able to hear any unlawful deduction from wages claim which may relate to this.

What can you expect if your claim is successful at Employment Tribunal?

Success! If the Employment Tribunal finds that an unlawful deduction from wages has been made, it will make a declaration in your favour to this effect.  You can then expect an order to be made for your employer to repay you the amount unlawfully deducted.

There is no upper limit on the amount that an Employment Tribunal can order employers to pay.  As such, even if you are claiming a substantial unpaid bonus, or commission, these larger claims can be pursued in the Employment Tribunal (The upper limit of £25,000 for breach of contract claims does not apply to unlawful deduction from wages claims).

Obviously, the Employment Tribunal is free to partially uphold an employee’s claim. For example, if a proportion of the deduction was lawful.

Also, if by the time the matter reaches the Employment Tribunal your employer has already paid some of the monies claimed, then they will be ordered to pay the balance.

Normally, the unlawful deduction from wages will be repaid subject to tax and National Insurance but the Employment Tribunal will express the amount of the unlawful deduction in gross figures.

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What to do if you have a claim for unlawful deduction of wages

We have helped many people like you successfully recover unpaid wages. We have represented employees at Employment Tribunal across the UK and are ready and able to help you achieve success.

Our professional and approachable team are available to speak to you today.

For a quick, preliminary assessment of your potential claim, call us now on 020 3923 4777.

Alternatively, you can submit your details 24/7 online via our quick & simple enquiry form.

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Frequently Asked Questions

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