When you employ people in your business, there’s a clear understanding that you will remunerate them in exchange for work done. The question is, can an employer withhold pay when their employees don’t stick to their end of the arrangement?
Find out about your rights as an employer.
Yes and no.
An employer can only withhold money from an employee under specific circumstances.
Such circumstances may involve breaching the employment contract.
There are, however, a few other exceptions to this rule.
Keep reading to learn more about when an employer has the right to withhold money from their employees.
There are not many situations in which an employer can legally withhold pay from one of their employees. In most cases, even if an employee is absent, they still have a right to their pay.
For example, most employees get 5.6 weeks of paid statutory leave and statutory sick pay (though some may not qualify). Even a suspended employee should receive their full pay.
That said, there are a few circumstances (covered by legislation) that allow you to withhold pay from your employees.
These circumstances include, but are not limited to, the following:
In this case, the employee is withdrawing their goodwill and are not providing the service they’ve agreed to give. An employee must follow the terms in their employment contract (part of which is performing their duties) in order to receive full payment.
If an employer previously overpaid one of their employees, they have the right to deduct that money from the next pay. For example, if an employer accidentally overpaid an employee £600, the employer can then subtract £600 from the employee’s future pay.
The employer should not deduct the full amount in one go, if it would cause the employee hardship. To do otherwise may breach the implied term of trust and confidence (the “Implied Term”) and potentially lead to a claim for constructive unfair dismissal (if the employee has at least two years’ service). We discuss this further below.
Despite legislation allowing the employer to make a deduction when they’ve made an overpayment, we always recommend including a “deductions clause” within the employment contract. This makes it easier to rectify the mistake, without the employee arguing that the employer has breached their contract.
Overpaying an employee is an easy mistake, especially if the employee is new to the team. It’s not uncommon for the payroll department to enter the wrong salary amount. In some cases, the manager will give the payroll department the wrong amount to begin with.
If the overpayment is small enough, the employee and employer might not even notice. This could cause the overpayment to go on for months before being corrected.
Employees who do notice small overpayments don’t always bring it to their employer’s attention. Doing so involves a query, and many don’t want to bother with it.
Sometimes, an employee won’t notice the overpayment until they get a notification from their employer about the mistake.
An employer should also inform employees of overpayment mistakes right away. This should also include a notification about when the deductions will occur.
The best way to do this is to work with the employee to find the best time to arrange the deductions. This will ensure the employee doesn’t suffer through any hardship when the money is taken out of their payments.
In theory, yes. That being said, a good employer will usually work with their employees to make sure this doesn’t happen and to avoid any breaches of the Implied Term.
If the employment relationship ends and the employee still owes you money, you must be careful with how you go about getting it. In this case, an employer doesn’t have the right to deduct any money from the employee’s pay, unless they can rely upon an enforceable deductions clause within the employment contract.
Without an express deductions clause, the employer is likely to be subject to a successful unlawful deduction from wages claim.
So can an employer withhold pay?
The answer is yes, but only under certain circumstances. If the employee has breached their employment contract, the employer is legally allowed to withhold payment. This includes going on strike, choosing to work to rule, or deducting overpayment.
Are you dealing with a tribunal claim against you? We can help. Take a look at some of our services.