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Unlawful Deduction of Wages is when a worker or employee has been unpaid or underpaid wages. There must be an actual deduction of wages, not just a proposal to deduct wages.

The Employment Rights Act 1996 (ERA) protects employees and workers from having unauthorised deductions made from their wages. Late payment of wages is also included as a deduction of wages.

Who is protected? 

The Act offers protection to all workers. This includes not only employees but also individuals who have entered into other contracts to personally perform any work or service.

There is no required period of service to bring a claim. Therefore, you can still bring a claim for unlawful deduction of wages even if you have been employed for less than two years.

What if you are self-employed? 

If you are self-employed and have not been paid the amount owed to you for services provided, the appropriate action would be to bring a debt recovery claim in the County Court. For further guidance on this, please contact our employment specialists today. 

When can an employer lawfully deduct wages?

It is unlawful for an employer to make a deduction of “wages” except in three situations, where:

  1. The deduction is required or authorised by statute; or
  2. There is a provision in the worker’s contract; or
  3. The worker has given their prior written consent to the deduction.

There are other exceptions to the protection offered by the unlawful deductions regime which fall outside of the Employment Tribunal’s jurisdiction, meaning a claim cannot be brought. These include (but are not limited to):

  • Deductions made to reimburse the employer in respect of an overpayment of wages or expenses incurred by the worker in carrying out their employment;
  • Payments made to third parties such as a pension scheme;
  • Deductions made by the employer on account of the worker having taken part in a strike or other action;
  • Deductions made to satisfy a court order or tribunal order for payment from a worker to an employer.

What are "wages"?

A worker or employee will only be able to claim for deducted “wages”. The ERA and subsequent case law have set out a wide definition of "wages". This includes any sums payable to the worker in connection with their employment, including (but not limited to):

  • Any fee, bonus, commission, holiday pay, or other payment referable to the worker's employment, whether payable under their contract or otherwise;
  • Payment in the nature of a non-contractual bonus which is made to a worker by their employer;
  • Statutory Sick Pay, Statutory Maternity Pay, Statutory Paternity Pay and Statutory Adoption Pay, Statutory Shared Parental Pay;
  • Statutory guarantee payments;
  • Payments when an employee is entitled to time off under the ERA, such as taking time off for antenatal care or taking time off to attend adoption appointments;
  • Sums paid during suspension on medical grounds;
  • Sums payable pursuant to orders for reinstatement or re-engagement by the Employment Tribunal;
  • Payments in respect for any period spent on garden leave;
  • Commission payments payable after termination of employment.

What are not "wages"?

The ERA and case law have also set out situations where payments are not classed as “wages”. Typically these are payments which are not made in connection with the provision of services during employment. These include (but again, are not limited to):

  • Advance of wages/payments under a loan agreement between the worker and employer;
  • Payment in respect of expenses incurred by the worker during the course of their employment;
  • Payment referable to the worker’s redundancy;
  • Any payment to the worker otherwise than in their capability as a worker;
  • (Non-contractual) payment in lieu of notice;
  • Employer’s pension contributions.

Are bonus payments classified as "wages"?

As set out above, non-contractual bonus payments are expressly classified as wages under the ERA.

However, where the bonus is payable on a discretionary basis the situation becomes unclear, and will depend on the nature of the bonus scheme and the employee’s claim. In other words, it will be determined on a case by case basis. However, case law has suggested that once a discretionary bonus has been awarded, it falls within the definition of “wages”.

How to bring an unlawful deduction of wages claim? 

An employee or worker can bring a claim for unlawful deduction at the Employment Tribunal. The worker can seek a declaration, payment or repayment of the unlawfully deducted amount and in some circumstances, unlawful deduction of wages compensation for further financial loss.

The claim should be brought within three months, beginning with the date of payment from which the deduction was made. Where there is a series of deduction, the time limit begins with the last deduction in the series. Claims can be brought outside of this time limit, but will be subject to the Employment Tribunals strict discretion.

How we can help?

Contact KLG – Employment Lawyers for Employees in London, Reading, Slough, Watford, Maidenhead & Henley

If you believe your wages have been deducted unlawfully by your employer, please contact us at Kalra Legal Group on 01628 702884 where our team of employment lawyers offer a 15 minute no obligation consultation call where we can discuss your matter and the next steps going forward.

Disclaimer: The above information should not be taken as legal advice. For legal advice on employment law matters please contact a member of our team directly.

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