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Unlawful Deductions from Pay

Last year 71,300 claims for unauthorised deductions were brought in front of the employment tribunal. This equates to 19% of all claims and makes unlawful deductions the second most common claim brought by employees.

The most common examples of unlawful deductions made by employers are:

  • Bonuses – many of the reported cases relate to the payment of bonuses. The employment tribunals have decided that, if the amount of the unpaid bonus can be quantified, the employee can claim it as an unlawful deduction.
  • Underpayment of commission – if the employee is paid less commission than is due, this may be an unlawful deduction.
  • Tips – if a worker is entitled to tips (or part of a "tronc"), which are not paid, he can bring a claim.
  • Holiday pay – a failure to pay outstanding holiday pay when the employment terminates has been held to be a deduction from wages.
  • Late payment of wages – this can lead to a claim.
  • Reduction in pay – if the employer reduces pay and does not have the contractual right to do so or has not obtained the employee's agreement, the shortfall will be an unlawful deduction.
  • Pay rises – conversely, if the employer promotes an employee or agrees an annual pay rise then fails to implement the new rate of pay, this will be an unlawful deduction.

A worker can bring a claim in the employment tribunal for unpaid wages while he is still employed. The deduction may also be a breach of contract but the worker can only claim for this in the employment tribunal if the employment relationship has ended.

The worker can claim a declaration and payment of the sum deducted, together with compensation for financial loss. This could include bank charges and interest, if the deduction caused him to become overdrawn. There is no limit on the amount that can be awarded and a worker has three months from the date of the deduction to bring a claim. If the claim is successful, the employer has to repay the amount deducted but also loses the right to recover it elsewhere. This means that it cannot, for example, start a County Court claim to obtain repayment of money lent to an employee.

Practical tips for employers

To avoid successful claims for unlawful deductions, you should:

  • Check your contracts of employment – do you have suitable provisions for making deductions?
  • Before lending money to an employee, ensure you have a valid written agreement to repay it.
  • Before you make a deduction, check that it is lawful.
  • If a worker complains that you had no right to deduct a sum from his wages, treat this as a formal grievance, investigate it and repay the sum if you were wrong.
  • If a claim is brought, in most cases it is not difficult to decide if the deduction was lawful or not. If it was unlawful, repay it.

Conclusion

What happened in those 71,300 cases last year? A third of them were withdrawn, 27% settled through ACAS, 14% were successful in a hearing at the employment tribunal and in 9% of them a default judgment was given. This means that the employer had to pay up in 50% of them. Before spending time and money in defending a claim, follow the practical tips set out above and contact us for advice if you are unsure or you are threatened with a claim.

If you need employment law advice call our friendly team on 08000 111 303 or fill in the Get in Touch Form to the right of this screen. 

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

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