Guide To Pay, Wages, Pay Cuts, And ‘Unauthorised Deductions’ - More Than Accountants

Guide To Pay, Wages, Pay Cuts, And ‘Unauthorised Deductions’

Differences Between Pay And Wages

Pay refers to the basic amount that will be paid to you, either weekly or monthly rate. While wage will include other extras such as commission or bonuses that are entitled to you, statutory payments including maternity pay, sick pay, etc. and holiday payments. Also, wages exclude pension, expenses owed, payment for loss of office and redundancy payments.

Unauthorised Deductions From Pay And Wages

All workers and employees are protected from employers who are making deductions from their pay or wages that are not authorised. It is important to know that your employer must not deduct anything from your pay or wages except if it is a requirement from the law such as student loan repayments, tax,  National Insurance contributions, etc. It should be permitted by the term in your work contract, however, you should recognise this part on your contract. Your employer can also make some deductions in case they can prove that you were not willing and ready to do the work, for instance, if you arrived late at work, provided that the right to deduct from your pay for unauthorised absence is stated in your work contract.

Your employer is also authorised to make deductions from your wages if you lose or damage the company’s properties such as a company mobile phone, as long as this is clearly stated on your work contract. Also, your employer should notify you about this deduction before it is made and the amount that will be deducted must be associated with the loss instead of an act of penalty. An authorised deduction can also be made if you were unable to work because you took part in industrial action. The deduction can be deemed legal if it is a result of an Employment Tribunal decision, or if it is used to redeem a previous overpayment of wages or expenses or perhaps it is a statutory payment relating to a public authority.

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Before any deductions are being made, the employer must inform you in writing the entire amount that you owe and demand that it must be paid. At the same time, you should also provide written consent for this deduction before any deduction is being made by your employer.

Any other unauthorised deductions from other businesses including redundancy payments that are not related to pay or wages may not be protected. However, you can claim for breach of contract if you think that you are permitted to this payment as stated in your work contract.

Training Expenses “Claw-Back” Clauses

When it comes to your employment contract, we cautious of employers who will incorporate training expenses “claw-back” clauses. This means that it is stated in the contract that the employer is allowed to claim the expenses for the training courses that they have provided to you in case you left the company within a specific period of time while still having the training. Most often, this will consist of the expenses for the course and examination fees, course materials, actual training, as well as study leave. Generally, this should only include formal training that can help the employee in gaining skills that can be considered valuable elsewhere.

These clauses are considered valid, however, the cost that the employer will deduct from you must be an accurate pre-estimate of the loss or damage that cause the employer to suffer, or else it will be considered as a “penalty” against the employee which is invalid. In order to figure out the amount that will be repaid by the employee, the employer must take into account the benefit that they have obtained from the employee who took the training. Also, whether the employee has acquired any knowledge of the part of the cost they’re supposed to repay.

The employer must also express that you have consented to repay these expenses from your future wages. Generally, there should be an agreement that is signed by both parties before the employee took the training. The payment should be done in stages and at a sensible level even after the employee has left the company. However, your employer may not be able to recover this amount from you if this is not found in the contract.

Moreover, if the employee’s salary is below the National Minimum Wage, then he should not be deducted from the repayment of the training expenses. Also, if it is not the fault of the employee that their employment has ended, for instance during a redundancy situation. Nevertheless, if the employee voluntarily resigns or is terminated due to misconduct, then there will be a deduction from the wages under the NMW limit.

Training that is provided under the Apprenticeship Levy, should not be deducted from the Apprentice in case they left the company. This will be the case if part of the cost for the training was paid by the employer and the other half was funded by the levy. It seems that it is possible to refund a portion of the training costs that were financed by the employer.

Pay And Wage Deduction Case Studies

At the end of 2015, there was a case in a Supreme Court, particularly the case on ParkingEye v Beavis, the test for what is an invalid penalty case was changed by the Court. The Supreme Court denied the test and that the amount that will be deducted was declared as a valid pre-estimate of loss. Furthermore, they stated that the genuine test for confirming whether a provision is considered as a penalty is whether the provision has caused damage on the defaulting party in all circumstances to the innocent party’s legal interest in executing the defaulting party’s contractual responsibilities.

Hence, if it is an authentic pre-estimate of loss, not excessive or irregular and not just an obstacle or a punishment to the other party, then the clause can be considered as valid. When evaluating whether a clause is punishing, it should take into account if the clause is unreasonable or extravagant by relating to some standard.

In another case which occurred at the end of 2013, specifically the case of Cleeve Link v Bryla, the claimant revealed that she signed a work contract wherein she consented to be terminated for misconduct during the first six months of her employment or if ever she resigned. As a result, the employer can recover any amount that had been spent for recruiting her as well as for her initial training. This particular amount will be deducted from her final pay. After less than three months, she was immediately dismissed for misconduct. The Employment Appeal Tribunal believed that the employer could recover its expenses since this is found in the contract.

Furthermore, the EAT announced that the clause could only be implemented since it is related to the payment for the loss endured by the employer. This is clearly a breach of contract committed by the claimant since the employer made a huge financial investment on the employee before she even began working and this can be readily quantified. While it is apparent that this resolution was created because the claimant has breached the contract due to her misconduct, the decision would have been different if she had simply resigned rather than being dismissed.

In 2014, there was a case of Vision Events (UK) Ltd v Paterson. This is all about the unused flexi-time which is related to the law about an unauthorised deduction of wages. Paterson was allowed to work on flexi-time with the condition that if he worked more than 45 hours each week, based on his contract, he should enjoy time off at a time which is more convenient to his employer. The guidelines on how the flexi-time system works when employment has ended were not stated in the contract or handbook. This applies to accumulated but untaken flexi-time.

After four years, he was considered as redundant so he requested that he should be paid for the flexi-time that he had accumulated which is approximately more than 1,000 hours. His employer wanted to pay a portion of the hours, however, Paterson refused so the offer was withdrawn. Instead, Paterson went to Employment Tribunal to file for a claim because of the unfair dismissal and illegal deductions being made to his wages.

Although the Tribunal denied his claim for unfair dismissal, yet they consented that there was an illegal deduction being made on his wages. As a result, Vision Event was ordered to pay more than £12,000 to the employee. However, the employer made an appeal and the Employment Appeal Tribunal consented and reversed the initial decision of the Tribunal. The EAT used the typical tests of whether to indicate a term into the work contract, whether it was essential that the contract must work or whether the term stated on the contract was agreed by both parties. The EAT made a conclusion that it failed on the two tests. The tribunal questioned that if the term should be indicated so as to make the contract fair, yet this is not actually the right question. No matter if the employer decided to make a good offer it won’t change the position that they were not lawfully required to pay the employee.

Nevertheless, this was not a majority decision made by the EAT. In fact, the claimant was getting close to winning the case since a minority believed his position that it was apparent that he did not consent to work without receiving any pay.

Based on the 2014 Employment Appeal Tribunal case, decreasing the employee’s pay due to its failure to provide a notice period upon resigning was deemed invalid. As a result, the employee will be responsible for paying the employer an amount equivalent to the salary that the employee would have earned during those unworked days which are part of the notice period. The fact is, this is actually equivalent to one month since the employee failed to provide any notice. The Courts regarded this amount as an authentic pre-estimate of the loss that the employer will likely endure since the employee was highly skilled and would be too costly to replace.

In 2018, it was established that outsourcing companies Capital and FDM group are being sued by their former employees. These companies are demanding that these former employees should repay them thousands of pounds for the loss that they endured when these employees were trying to leave. Both of these companies will ask their job hunters to work within three to four months in training tasks without being paid. Also, they should consent to work for at least two years or else they will be responsible for repaying the huge fees for the training courses.

Because of this, the QC Jolyon Maugham is planning to initiate a high court action to have these practices abolished from the law. Graduates who left Capita without completing their training and working for two years are asked to pay up to £13,000.

Generally, employers should also recognise that taking legitimate deductions from the worker’s pay should not make them earn below the National Minimum Wage for that particular period when the deduction was being made. On the other hand, when employees leave their employers, this should not be considered as misconduct on the part of the employees. Or perhaps these employees are not liable for the termination such as redundancy. However, this is not likely applicable when the employee voluntarily resigns.

In 2014, in the case of Commissioners for HM Revenue and Customs v Lorne Stewart Plc, Miss Brade was an employee of Lorne Stewart Plc. She signed an agreement consenting that she will repay a portion or all of the costs of the training course in case she decides to leave the company within two years of attending the course. Ultimately, Brade resigned and as a result, her final salary was deducted by Lorne Stewart since this was authorised on the agreement. The Employment Appeal Tribunal stated that when there is a voluntary resignation, this will permit the employer to make deductions without infringing the National Minimum Wage law.

Also, in 2014 the Employment Appeal Tribunals declared that holiday underpayments could be considered as an unauthorised deduction from pay.

Council Tax Attachment of Earnings Orders (CTAEO)

From July 8, 2019, HMRC is conducting a test with 29 various council areas in England and Wales in order to recoup debts directly from employees’ salaries. People who are residing in one of these 29 council areas who have Council Tax arrears, may discover that these arrears were being directly taken from their salaries since these councils have the authority to make deductions directly from their wages through their employer’s payroll.

It was in 2017 when the Digital Economy Act (2017) was launched. This permits debt information-sharing authority between specific public authorities with the intention of handling and decreasing debt. This is the initial application of the debt information-sharing authority and permits local authorities to acquire an individual’s employer and salary information from the HMRC. At present, the councils can only utilise data that are provided by the resident to collect their debts.

In this pilot, these 29 councils were able to acquire HMRC employer and Self Assessment information for a sample of residents who have unpaid Council Tax.

The data that the council will provide to HMRC includes the title, first name, middle name, last name, and contact address or debt address, so debtors can acquire their employment data. HMRC will then make a comparison between these details and the internal records. If they can see an accurate match, then HMRC will provide the details that were asked for back to the council.

Afterwards, the council will get in touch with the worker in order to decide what is the best way to retrieve the debt. The council can then obtain a Council Tax Attachment of Earnings Order (CTAEO)  so as to reinforce the payment of Council Tax against working debtors. The employer should abide by this order.

The pilot is designed to minimise the utilization of bailiffs when recovering unpaid bills, however, this has been scrutinised by debt advice charities. The pilot will operate for a year then it will be evaluated. In case the pilot is deemed successful, then it will be implemented to all England and Welsh councils permanently.

The 29 councils that took part in the pilot were Birmingham, Bradford, Carmarthenshire, Coventry City, Ealing, Islington, Kirklees, Manchester, Newham, Rotherham, Sandwell, Southwark, Wakefield, Wealden, Barnsley, Bolton, Brighton & Hove, Cornwall, Dudley, Eastbourne, Kensington & Chelsea, Lewes, Medway, North Hertfordshire, Salford, Solihull, Tower Hamlets, Walsall, and Wolverhampton.

If Your Employer Deducts Money From You Without Following The Law

When this happens, you might want to check your payslip and contract. If you can’t find any explanation, then you should try talking to your employer to find out and ask them why, or perhaps if you are a member of a Trade Union, then you can talk to their representative. Eventually, you have every right to go to Employment Tribunal and make a claim for your money.

If Your Employer Tells You That You’ve Been Overpaid

Undoubtedly, your employer will do everything to try to reclaim the overpayment from you. Also, they are authorised to deduct the payments from your salaries legitimately to obtain this amount. However, there are some exceptions. If you can provide evidence that the overpayment was never your fault, or if your employer encourages you to believe that you were entitled to some additional cash, or if you had altered your position in good faith, as a result of the overpayment, then there are chances that you will be able to retain some or all of the money.

In case you have incurred expenses due to the overpayment, then your employer will be unable to recover all of it. Nevertheless, it is quite difficult to prove that you have good faith. This is because when there is an increase in your salary and you were not informed about this, then you can quickly notice it. Your employer should be reasonable enough in asking you how and when you will pay back the overpayment.

Deductions From SSP

By law, employers are allowed to make deductions from SSP for overpayments on wages for instance. However, this should not be done in situations when trust and confidence between the employer and employee are breached. For example, when the employee is receiving less or no money at all due to some sickness. Employers should wait until the employee gets back his full salary before making the deductions. The employee must also agree to this. Or maybe the worker left its employment or was terminated, then the deduction will be made on final salary payment.

Deductions From Retail Workers

When it comes to retail worker’s pay, there are certain rules for deductions that are meant for them. The employer of a shop-worker is allowed to make some deductions due to missing stocks or cash shortages. This could occur, for example, due to the dishonesty of the shop-worker or perhaps the customer stole the items.

The employer must provide the employee with the details of the deductions in writing during payday. When there are any deductions for the missing stocks or cash, then it must be made within 12 months right after the employer discovered the shortage.

Also, the employer must make sure that the deduction is not more than 10% of the retail worker’s gross salary on a given payday. Although, this deduction can be done in addition to other legible deductions that the employer is authorised to make.

Although, there is no limitation on the amount of money that can be deducted by the employer in total from a shop-worker for the missing stocks or cash. However, the only limit is the amount that will be deducted on each payday.

Pay During Severe Weather Or Transport Disruptions

As an employee, it is your responsibility to get to work, no matter what the circumstances are, except if your employer has to provide you with transport to and from work.

In case, you fail to go to your work, then the employer has no obligation whatsoever to pay you or perhaps pay you for the time that you’ve missed in case you arrived late, even if you are not on fault. Except if your employment contract has a particular provision that absences should be paid. Your employer will only be required to pay you when you are willing, ready, and available to work.

The employer’s act of failing to pay you during these situations is not considered as an illegal deduction of wages.

During these situations, employers can consider permitting their employees to work from home, make up for the time that they’ve missed at a later date, or encourage their employees to look for other forms of safe transport.

In case these options are not viable, then the employer can notify the employee whether the missed time of their work during these situations will be paid or not. Or they can request that the missed time can be counted as paid annual leave. Nevertheless, employers cannot demand that employees should take annual leave without the necessary notice.

Payment During Temporary Closure

In case the employer decided to temporarily close his business premises on brief notice, this means that there is no work available for its workers. Hence, this is also known as the period of lay-off. When there is a layoff, employees are still entitled to receive regular pay except if employees agree to not being paid or there is a contractual right to be laid off with no pay.

In the event that your contract of employment includes a right for the employer to enforce a period of lay-off with no pay or the employee agree to a period of lay-off with no pay, then these employees are qualified to a Statutory Guarantee Payment for a full day of the lay-off.

Nevertheless, if you are entitled to regular pay but does not receive it, then you can make a legal claim for the damages done by your employer or claim illegal constructive dismissal in case you opt to resign due to non-payment. The grounds would be a breach of your contract of employment. Furthermore, you can also claim that your employer has done an unauthorised deduction from your wages.

Pay Cuts

If your employer has a plan to implement cost-cutting measures that incorporate pay cuts, then pay cuts should not be inflicted on employees without their permission. The employer must seek consent from the employee and confirm this through writing. The employee must be notified if this change is temporary or permanent.

In case the employee will not accept the suggested change, then it should be put into writing that he is working under protest or taking this as a last resort. The employee may also choose to resign on the grounds of breach of contract of employment since the employer is reinforcing a unilateral modification. Take note that you should seek some advice before you proceed in this course of action.

The employee could also choose to raise a grievance and specify all the details on the complaint. Hence, you may now make a legal claim against breach of contract, unlawful deduction of wages, or constructive dismissal, in case you opt to resign.

If you don’t agree with the change, then it is possible that your employer will end your current contract and create a new contract for you. Since this is termination, then you could choose to make a claim due to unfair dismissal. You can sue your employer at an Employment Tribunal but most probably they will claim that the termination was fair because of business reasons.

In 2018, particularly in the case of Mostyn v S and P Casuals Ltd, there was a downfall on the sales of Mr Mostyn, who was a sales executive. In fact, his sales have decreased for over a period of four years. Because of this incident, his employer told him that there will be pay cut on his basic pay from £45,000, it will be reduced to £25,000. However, it was not favoured by Mr Mostyn. Because of this objection, his employer considers this as a form of grievance. Nevertheless, the grievance was denied. As a result, Mr Mostyn resigned from his job and made a legal claim for constructive dismissal due to the breach of the intimated term of shared trust and confidence.

The original Employment Tribunal understands the action of the employer since this can likely cause serious damage or destruction to that bond of trust and confidence between the two parties. Furthermore, they felt that the employer has a more sensible cause for its actions since it resulted in a decline in the sales figures.

The Tribunal assumed that even if Mr Mostyn had been constructively dismissed, it can still be considered as a fair dismissal because of its incapability. But Mr Mostyn still made an appeal, the EAT did not concur with the ET.  The EAT won’t accept that the employer has a sound and proper cause to implement a pay cut. Additionally,  they also believe that Mr Mostyn has been constructively and wrongfully terminated. Instead of imposing the pay cut, it would have been much better if the employer introduced performance management scheme instead of imposing the cut.

Another example is the case of Decker v Extra Personnel Logistics Ltd which occurred in August 2018. This is the case the recruiter’s refusal to agree to a pay cut. Fortunately, he became successful in his claim for constructive dismissal at Employment Tribunal.

From 2008 until July 2017, Mr Decker was employed in the agency until such time that he was claiming for constructive dismissal. At the start, he worked for 40 hours per week, however, in 2005 it was reduced to 32 hours and in February 2017, his employer asked him to reduced his hours to 16 per week, due to the fact that the agency’s two contracts have just ended. This means that Mr Decker will endure a loss of £205 on his weekly pay.

Decker revealed that he could not afford this, however, he would agree to have his hours reduced to 24 per week but on the condition that there should be an increase on his daily rate, from £102.97 to £110.00. Mr Decker assumed that the agency had accepted his offer. However, on June 1, 2017, the MD announced that they are not willing to give him an increase in his pay. Instead, Mr Decker was asked by the agency to sign a new contract. On June 5, 2017, Mr Decker resigned.

According to the tribunal, it seems that the employer had essentially breached the employment contract of Decker. Additionally, they did not comply with the Acas code of practice specifically on disciplinary and grievances. They pointed out that the company failed to treat Decker’s e-mail as a grievance even if he explained all the issues he had with regards to the company’s action.

Since this is a very complicated situation, it is important that you should seek some advice from the Citizens Advice Bureau, or your Trade Union, or in any other place before proceeding with this decision.

Pay Slips

As an employee, you are entitled to receive an itemised payslip, either on or before payday. Employers will either provide you with an electronic payslip or a printed one. The important things that must be included in your payslip are your earnings, both gross and net, which means before and after any deductions. The amount of any deductions should also be included, such as National Insurance, tax, or any other deductions that will change every time you are being paid. In case there are any fixed deductions, then employers must be willing to explain this to their employees, for instance, repayment of a season ticket loan. The explanation can either be placed on the payslip or in a separate statement. It must be given to the employee before he receives his first payslip.

When employers fail to provide itemised payslips, then they will suffer various consequences. Due to non-compliance, the employee can go to the Employment Tribunal and report his employer. The Tribunal will then order the employer to pay the employee the compensation in case a deduction has been made without properly itemising them on the payslip.

Starting from April 6, 2019, payslips should be itemised so it will illustrate the number of hours paid for, in case the employee is being paid on an hourly basis. All type of employees, workers, and even agency workers must receive a payslip from there employers. When it comes to agency workers, their payslip must contain a breakdown of the companies who paid them. It must also include all the costs or charges that are taken from their earnings.


When you are working overtime, you are working beyond your contractual working hours. Nevertheless, there are various types of overtime such as guaranteed overtime, non-guaranteed overtime, voluntary overtime, and compulsory overtime.

Guaranteed overtime occurs when the employer is required to give overtime, whereas, non-guaranteed overtime is when the employer is not required to offer overtime. With voluntary overtime, the employee is not forced to do some overtime, however, he can choose to accept this if he wants to. Compulsory overtime is when the employee must accomplish the overtime offered by the Employer.

It is essential that you must know the type of overtime offered to you on your contract of employment.  So, how about the payment for overtime? Generally, the employee has no right to be paid on the overtime that he worked for, provided that this is included in the National/Living Minimum Wage rules. Hence, there is also no right to an intensified level of payment for any overtime rendered by the employee.

Nevertheless, in case your contract of employment guarantees you that you will be paid for your overtime then you can expect that you will be paid for this. On the other hand, if your contract of employment does not indicate the exact rate that will be paid to you, then you will be provided with a reasonable rate for the overtime that you’ve rendered. In case your contract does not specify the right to be paid for the overtime then you do not have that right, except if there is a verbal promise that has been made.

For some employers, they prefer to offer time off to their employees rather than paying for the overtime.

Hence, when calculating paid maternity, holiday pay, adoption or paternity leave, the employer should now include the overtime pay.

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