Our Crunch advisors are only able to answer accountancy related questions. If you have an employment question please either leave a comment below or phone the ACAS Helpline on 0300 123 110.

Differences between pay and wages

• Pay is the basic amount you should be paid (e.g. your monthly or weekly rate)
• Your wage can also include any bonuses or commission you are entitled to, holiday payments, statutory payments (sick pay, maternity pay). Wages don’t include expenses owed, pension and redundancy payments or compensation for loss of office.

You can read details about incentivising staff with a bonus scheme here.‍

To calculate your take-home pay, if you have been offered a new job or salary, go to this salary calculator.

To calculate a week’s pay (which you need to do for redundancy payments, holiday pay and pay during notice periods) look at this link.

For details of your pay rights during your notice period go to this link.

Unauthorised deductions from pay and wages

Employees and workers are protected from employers making unauthorised deductions from their pay or wages.

Your employer cannot deduct money from your pay unless:

• It’s required by law (e.g. National Insurance contributions, tax, student loan repayments)
• It’s allowed by a term in your employment contract (but you must have seen a written copy of that part of the contract) or if your employer can demonstrate that you were not ‘ready and willing’ to do the work (for example an employer can make deductions from you pay if you turn up for work late, as long as the right to make deductions from wages for unauthorised absence is specified in your employment contract). Your employer can also deduct money from your pay if, for example, you lose or damage a work mobile phone, as long as this has been expressly stated in your contract of employment (and you’re notified about the deduction before it’s made, and the amount deducted relates to the ‘loss’ rather than act as a personal penalty)
• It is a statutory payment due to a public authority (you can read more about Direct Earnings Attachments here, and Council Tax Attachment of Earnings Orders below)
• You have not worked due to taking part in industrial action
• It is to recover an earlier overpayment of wages or expenses (for more information see below)
• It is a result of a Court Order or Employment Tribunal decision.

Before making any deductions, your employer must tell you in writing the full amount you owe and make a demand for this payment and you must give written consent to this deduction before your employer makes the deduction.

Unauthorised deductions from other monies such as redundancy payments (i.e. not pay or wages) are not protected, but you may be able to claim for breach of contract if you’re entitled to the payment in your employment contract.

Training expenses ‘claw-back’ clauses

Many employers have training expenses ‘claw-back’ clauses in their contracts – i.e. the contract will say that the employer can claim the cost of training courses they have provided for you, if you leave the employer within a certain period of time of having the training. This may include the cost of the actual training, course materials, course and exam fees, and study leave, but should generally only cover formal training that enables an employee to gain a skill that will be useful elsewhere.

These clauses can be valid, but the amount the employer asks you to repay must be a genuine pre-estimate of the damages/loss which the employer has (or will) suffered, otherwise it will be known as a ‘penalty’ against the employee which is unenforceable. In determining the amount the employee needs to repay, the employer must consider what benefit they’ve received from the employee undertaking the training and whether the employee would have any knowledge of the portion of the cost they’re being asked to repay. 

The employer must also demonstrate that you’ve agreed to repay such costs from your wages in the future (ideally with a signed agreement before you undertook the training), and ideally take the payment in stages and at a reasonable level (even after you have left the company).  An employer cannot recover the money from you if there is not a contractual right to do so.

Deductions cannot be made for repayment of a training cost if this would mean the employee was paid below the National Minimum Wage, where the employee has no ‘fault’ in their employment ending (i.e. in a redundancy situation; however where an employee voluntarily resigns or is dismissed for misconduct then a deduction can occur that takes the earnings under the NMW limit. 

Training given under the Apprenticeship Levy, cannot be recovered from the Apprentice when they leave (if the training was partly funded by the Levy and partly from the Employer’s funds then it may be possible to refund part of the training costs that were funded by the Employer).

Pay and wage deduction case studies

However, in a Supreme Court case at the end of 2015 (ParkingEye v Beavis), the ‘test’ for what is an unenforceable penalty clause was altered by the Court. The Supreme Court rejected the test that the amount to be repaid was a ‘genuine pre-estimate of loss’, and said the true test for establishing whether a provision is a ‘penalty’ is whether the provision imposes a detriment on the defaulting party out of all proportion to the innocent party’s legitimate interest in enforcing the defaulting party’s contractual obligations. So, if it’s a genuine pre-estimate of loss, not disproportionate or excessive and not just a deterrent or a punishment to the other party, the clause may be valid. In assessing when a clause is ‘penal’, it should be considered whether the clause is ‘unconscionable’ or ‘extravagant’ by reference to some norm.

In a previous case at the end of 2013 (Cleeve Link v Bryla) the claimant had signed an employment contract agreeing that if she was dismissed for misconduct in the first six months of her employment, or resigned, the employer could recoup any sums that had been spent on her recruitment and initial training, from her final pay. She was summarily dismissed for misconduct after less than three months and the Employment Appeal Tribunal held that the employer could recoup its costs as provided for in the contract.

The EAT said the clause could only be enforced because it represented compensation for the loss suffered by the employer as a result of the claimant’s breach of contract (as it had made a serious financial investment in the claimant before she started work which could be easily quantified). While it is clear this decision was made because the claimant, by her misconduct, had breached her contract, the decision may not have been the same if she had simply resigned and had not been dismissed.

In a 2014 case about unused flexi-time, bought under the ‘unauthorised deduction of wages’ legislation, Vision Events (UK) Ltd v Paterson. Paterson was entitled to flexi-time where if he worked more than his contractual 45 hours per week he was entitled to take time off, at a time to suit his employer. The details of how the flexi-time scheme would work on termination of employment (for accrued but untaken flexi-hours) was not documented in his contract or handbook. Four years later he was made redundant and he asked to be paid for the flexi-time he had accrued which was in excess of 1,000 hours. His employer offered to pay part of the hours but Paterson refused and the offer was withdrawn. Paterson made a claim to the Employment Tribunal for unfair dismissal and unlawful deductions from wages.

The Tribunal rejected his unfair dismissal claim, but agreed there had been an unlawful deduction of wages and ordered Vision Event to pay him over £12,000. The employer appealed and the Employment Appeal Tribunal agreed and overturned the original Tribunal decision. The EAT applied the usual tests of whether to imply a term into an employment contract – whether it was necessary to make the contract work or whether it was a term which both parties would have said was agreed between them. The EAT concluded that it failed both tests – the Tribunal had asked if the term should be implied in order to make the contract fair, but that was not the correct question. The fact that the employer had made a “goodwill offer’ did not alter the position; they were not legally required to pay the employee. This was not a majority decision by the EAT, the claimant was close to winning his case as a minority accepted his position that it was obvious that he did not agree to work for no pay. For more details about implied terms – see our guide here.

A 2014 Employment Appeal Tribunal case found that docking an employee’s pay for their failure to give her full contractual notice period on resigning was enforceable. The employee was liable to pay the employer a sum equivalent to the wages she would have earned during the unworked part of her notice period (which was, in fact, the whole month as she had not given any notice). The Courts considered the amount was a “genuine pre-estimate” of the loss the employer is likely to suffer as the employee was highly skilled and would be expensive to replace.

In 2018, it was confirmed that outsourcing firms Capital and FDM group are facing legal action from former employees who were given demands to repay thousands of pounds in fees when they tried to leave their employer. Both companies make job hunters work for three to four months in training roles without being paid; they must then agree to work for two years or be liable to repay large fees for their training courses. The QC Jolyon Maugham is to launch a high court action to have these practices outlawed. Capita demands up to £13,000 from graduates who leave before completing their training and two years of work.

Employers must also consider that, generally, taking genuine deductions from pay cannot leave the worker earning below the National Minimum Wage for that period (the deduction is made), where leaving employment is not a matter of misconduct on the employee’s part, or the employee isn’t responsible for the termination (e.g. a redundancy; but this would not apply where the employee voluntarily resigns).

In Commissioners for HM Revenue and Customs v Lorne Stewart Plc 2014, Miss Brade worked for Lorne Stewart plc and signed an agreement whereby she agreed to repay all or part of the costs of a training course if she left employment within two years of attending the course. Brade resigned and Lorne Stewart made a deduction from her final salary payment (as the agreement authorised). The Employment Appeal Tribunal found that a voluntary resignation would allow the employer to be entitled to deduct the money due without infringing the National Minimum Wage legislation.

In 2014 the Employment Appeal Tribunals found that underpaying holiday payments could be an unauthorised deduction from pay – you can see all the details here.

Council Tax Attachment of Earnings Orders (CTAEO)

From 8th July 2019, HMRC are leading a trial with 29 different council areas in England and Wales to recover debts directly from employees’ wages. Individuals who live in one of these 29 council areas (see the list below), who are in significant Council Tax arrears, may find these arrears being taken directly from their wages, as councils will have the power to deduct such sums directly from their earnings via their employer’s payroll.

In 2017, the Digital Economy Act (2017) was introduced which allows debt information-sharing powers between specified public authorities for the purpose of managing and reducing debt. This is the first use of the debt information-sharing powers and allows local authorities to obtain an individual’s employer and income information from the HMRC (currently, councils can only use data supplied by the resident to recover their debts).

In this pilot, 29 councils are able to obtain HMRC employer and Self Assessment data for a sample of residents who have not paid their Council Tax.

The council will supply HMRC with a title, forename, initial or middle name, surname, debt address or contact address for debtors to obtain their employment information. HMRC will compare those details against their internal records. Where there is an exact match, HMRC will provide the requested details back to the council.

The council will then contact the individual to decide how best to recover the debt. The council could then raise a Council Tax Attachment of Earnings Order (CTAEO) in order to enforce the payment of Council Tax against employed debtors. The employer must then comply with this order.

The pilot is intended to reduce the use of bailiffs in reclaiming unpaid bills but has been criticised by debt advice charities. The pilot will run for one year, after which time it will be evaluated. If the pilot is successful, it may be rolled out to all England and Welsh councils on a permanent basis.

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

If your employer deducts money from you without following the law

After checking your payslip and contract for an explanation, try to speak to your employer first to find out why, or a Trade Union representative if you are a member. Ultimately you have the right to make a claim at an Employment Tribunal for your money.

If your employer tells you that you've been overpaid

Your employer will no doubt try to recover the overpayment from you, and they’re allowed to deduct payments from your wages, by law, to cover this. However, if you can prove that:

• You were led to believe by the employer that you were entitled to the extra cash
• And you had, in good faith, ‘changed your position’ as a result of the overpayment (spent it) and
• The overpayment was not your fault.

You may be able to keep some or all of the money. If you’ve incurred expenditure (e.g. with a mortgage) because of the overpayment then your employer may not be able to recover all of it. However, to prove that you had ‘good faith’ may be difficult as you would normally notice if your wage increases greatly and you haven’t been informed of this. Your employer should be reasonable in requesting how and when the overpayment be paid back to them.

Deductions from SSP

Employers are legally entitled to make deductions from SSP (as it’s seen as a ‘wage) for salary overpayments, for example, but aren’t advised to do this as this could breach the implied duty of trust and confidence which exists between the employer and employee, if an employee is receiving little or no money while sick. Employers should wait to make the deductions (which the employee must agree to) until the employee returns to full pay or, if they leave employment (or their employment is terminated), from their final salary payment.

Deductions from retail workers

There are special rules for deductions made from shop-worker’s pay.

The employer of a shop-worker can make deductions for cash/till shortages or missing stock. This could be, for example, because the shop-worker has been dishonest or because of theft by a customer.

The employer must give details in writing of the deduction to the employee on payday. Any deduction for missing cash or stock must be made within 12 months of the employer discovering the shortage.

The deduction must be no more than 10% of the shop-worker’s gross pay on anyone payday. This deduction can be made in addition to other lawful deductions the employer is allowed to make.

There’s no limit to the amount of money that an employer can deduct in total from a shop-worker for missing cash or stock. The only limit is how much can be deducted on each payday.

Pay during severe weather or transport disruptions

The responsibility is on you, the employee, to get to work regardless of the circumstances (unless your employer has contractually promised to provide transport for employees to and from work).

If you fail to attend work there is no obligation on the employer to pay you (or pay you for missed time if you arrive late) – even if it is not your fault – unless your employment contract has specific provision for such absences to be paid. Your employer is only obliged to pay you when you are ready, willing and available to work.

An employers’ failure to pay you in these circumstances is not an unlawful deduction of wages.

In these circumstances employers should consider:

• Encouraging employees to find other forms of safe transport
• Allowing employees to work from home
• Allowing employees to make up the time at a later date.

If these options aren’t viable, then the employer should advise the employees whether their time off work in these circumstances will be paid or unpaid or whether they can request to take the time off as paid annual leave. (However, employers cannot insist that employees take annual leave without the requisite notice).

Payment during temporary closure

If an employer has to temporarily close their business premises at short notice and there is no work available for its employees, as a result, this is called a period of lay-off. During a layoff, you’re entitled to receive normal pay (unless there’s a contractual right to be laid off without pay or employees consent to not being paid).

If your contract of employment has a right for the Employer to impose a period of lay-off without pay, or you consent to a period of lay-off without pay, you should be entitled to a Statutory Guarantee Payment for any complete day of lay-off (for more information about layoffs see the Direct Gov site here or our new guide to short-time working and layoffs here.

If you’re entitled to normal pay but don’t receive it, you can sue your employer for damages or claim unfair constructive dismissal (if you resign as a result of the non-payment) on the grounds of a breach of your contract of employment; you may also claim that your employer has made an authorised deduction from wages.

Pay cuts

If your employer is considering cost-cutting measures that includes pay cuts, then a pay cut shouldn’t be imposed upon an employee without their consent. They should seek your agreement and confirm the change in writing, informing you if this is a permanent change (or if there’s a time limit).

If you don’t accept the proposed change you should:

• Make it clear, in writing, that you are working under protest or as a last resort

• Resign on the grounds that your employer has breached your contract of employment by imposing a unilateral change (always take advice before pursuing this course of action)

• In either case, you should raise a grievance detailing your complaint. You’ll then be in a position to bring a claim for unlawful deduction of wages, breach of contract and/or, if you have resigned, constructive dismissal.

If you don’t accept the change, your employer may terminate your existing contract and re-engage you on a new contract. This is a dismissal, so you could make a claim for unfair dismissal at an Employment Tribunal (although your employer will probably claim this was a fair dismissal for business reasons).

In 2018, in Mostyn v S and P Casuals Ltd, Mr Mostyn was a sales executive whose sales figures fell over a period of four years. Because of this, his employer asked him to accept a pay cut in his basic pay from £45,000 to £25,000. Mr Mostyn objected and his employer treated it as a grievance. The grievance was rejected and Mr Mostyn resigned and claimed constructive dismissal for the breach of the implied term of mutual trust and confidence.

The original Employment Tribunal said that the employers actions were likely to seriously damage (or destroy) the relationship of trust and confidence between them, but they felt the employer had reasonable cause for its actions because of the falling sales figures. The Tribunal felt that even if he had been constructively dismissed, it would’ve been a fair dismissal for reasons of capability. Mr Mostyn appealed and the EAT disagreed with the ET. The EAT didn’t believe the employer had ‘reasonable and proper cause’ to impose the pay cut and Mr Mostyn had been constructively and wrongfully dismissed. It would have been better for the employer to start a performance management procedure rather than imposing the cut.

In August 2018, in Decker v Extra Personnel Logistics Ltd, a recruiter who refused to accept a pay cut successfully won a constructive dismissal claim at an Employment Tribunal. Mr Decker was employed from 2008, until he left in July 2017, claiming constructive dismissal. He initially worked 40 hours per week but this was cut to 32 hours in 2015, and in February 2017 he was asked to cut his hours to 16 per week, as the agency had lost two contracts – this would have meant him losing £205 pay per week. Decker said he could not afford this but was willing to reduce his hours to 24 per week if his daily rate was increased from £102.97 to £110.00. Mr Decker thought the company had accepted this but on 1st June 2017 the MD said they could not offer a pay rise and asked him to sign a new contract – Decker resigned on 5th June 2017. The tribunal felt the employer “had fundamentally breached” Decker’s employment contract and hadn’t followed the Acas code of practice on disciplinary and grievances (as they felt an e-mail from Decker laying out the issues he had with the company’s action had failed to be treated as a grievance).

More details about changing your terms and conditions are here.

As this can be a very complicated area, please take advice from your Trade Union, or the Citizens Advice Bureau or elsewhere before proceeding down this route.

Pay slips

Employees are entitled to an itemised payslip, on or before payday. Employers can choose whether they provide printed or electronic (online) payslips. Your payslip must show:

• your earnings before and after any deductions (Gross and Net)
• the amount of any deductions that may change each time you’re paid, e.g. tax and National Insurance.

Employers must also explain any deductions that are fixed in amount, e.g. repayment of a season ticket loan. They can choose to do this either on a payslip or in a separate written statement, which must be sent out before the first payslip.

The consequences when employers don’t provide itemised payslips are:

• An employee can go to Employment Tribunal which can make a declaration of non-compliance
• The Tribunal can order the employer to pay compensation if the employer has made a deduction which hasn’t been properly itemised on the payslip.

From 6th April 2019, payslips must be itemised to show the number of hours paid for, where the worker is paid an hourly rate. The right to receive a payslip will be expanded to ‘workers’ as well as employees (and Agency Workers will need to receive a breakdown of who pays them and any costs or charges that are deducted from their wages).

Overtime

Overtime normally means any hours worked over and above your normal contractual working hours. However, there are different types of overtime:

• Guaranteed over-time – an employer is required to offer overtime
• Non-guaranteed over-time – an employer does not have to offer overtime
• Voluntary overtime – an employee isn’t required to do any overtime but can accept it if they wish
• Compulsory overtime – an employee is required to do any overtime offered by the Employer.

It’s important you’re clear what type of overtime is referred to in your contract of employment. Payment for overtime? There is generally no right to be paid for any overtime you work (as long as this is within National/Living Minimum Wage rules).

There’s therefore also no right to an enhanced level of payment for any overtime worked.

However, if your contract guarantees paid overtime then you should be paid for this. If your contract doesn’t mention the exact rate to be paid then a ‘reasonable’ rate for the overtime should be paid. If your contract doesn’t mention a right to be paid for overtime then there’s no such right, unless an oral promise has been made.

Some employers may offer you ‘time off in lieu’ instead of pay for overtime.

Overtime worked should generally, now, be taken into account when calculating holiday pay (see our Working Time Regulations Guide for more information) or paid maternity, paternity or adoption leave.

Tips

Tips, service charges, cover charges and gratuities don’t count towards the National Minimum Wage (so, for example, tips should be paid on top of the minimum wage).  There are currently no laws on tipping, but there is a voluntary code from the Government which you can read about on the Acas page here. 

In 2018, the government announced they were to introduce a law prohibiting employers from retaining any percentage of an employees’ tips. Several years followed... and then on 2nd May 2023, the Employment (Allocation of Tips) Act 2023 finally received royal assent, and this new law will come into force in October 2024. A new Statutory Code of Practice was published in April 2024, that provides employers and staff with advice, and staff will have a new right to request more information about tips. This will apply to all employees and workers (including agency staff and zero-hours workers). You can see the Government guidance here.

More details on the new law on tips - The Employment (Allocation of Tips) Act 2023 came into force on 1st October 2024.

This new law creates a legal obligation on Employers to allocate all tips, gratuities and service charges that the business receives from customers, to workers, in a fair way without any deductions.

The new law says that Tips must be distributed fairly and transparently between workers (which includes employees, agency staff, casual staff and zero-hours workers).  The Government have produced a Statutory Code of Practice giving guidance on the fair and transparent distribution of tips, to help Employers understand the new rules.

Employment Tribunals will be required to take any breach of the Code into account if a worker complains that there has been a failure to comply with the law (a worker has up until 12 months after the failure to pay the tips to make a complaint).

The law applies to all businesses where tips are paid, but is obviously of primary importance to the hospitality industry.

Some important points of the new laws include:

• Workers cannot be asked to forgo (i.e. contract out of) these new rights;
• A “fair” way is not defined in the law, but the Code gives guidance about allocating the proportion to workers;
• Employers should have a policy on tips and how they are allocated, and ensure the policy is available for all staff to read;
• Tips must be paid to the member of staff in the following month the tip was received;
• Employers must keep records of all tips paid to staff for 3 years after they were paid and must make these records available to workers on request (but this is limited to 1 request per worker every 3 months).

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Our Crunch advisors are only able to answer accountancy related questions. If you have an employment question please either leave a comment below or phone the Acas Helpline on 0300 123 110.

If you are an employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small creative businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.

Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.