What to do if you’ve been underpaid

An employer can underpay an employee in several ways. In each scenario there are steps employees can take to claim the money they are owed. 

In this article, we examine each type of underpayment and explain what you can do if your employer owes you money.

The four types of Tribunal claims for underpayment 

At Employment Tribunal, there are four types of underpayment claims that employees can make: 

• Unlawful deduction of wages: this can relate to either underpayment of wages or a failure to pay the National Minimum Wage or National Living Wage
• Breach of contract: this relates to a failure to pay the correct amount of notice pay  
• Redundancy: this relates to a failure to pay the correct amount of redundancy pay
• Working Time Regulations: this relates to a failure to pay the correct amount of holiday pay. 

If your employer owes you money in any of those scenarios, you can try to get it back by making a Tribunal claim. The guidance in this article explains how you can do that. 

However, if your employer is insolvent, it means they can’t pay their debts. Instead of following the steps outlined below, you should use the government’s insolvency service to apply for unpaid: 

• wages 
• overtime 
• holiday pay 
• commission 
• redundancy 
• notice pay.  

You can find out if your employer is insolvent using the Companies House website.  

How to claim for unlawful deduction of wages

There are two scenarios for unlawful deduction of wages:

1. Your employer underpays you for the time you’ve worked
2. Your employer fails to pay the National Minimum Wage or National Living Wage. 

If you suspect that either of these scenarios has happened, the first thing you should do is check the itemised statement your employer gives you every time you’re paid. This document will help you understand how your pay is calculated. 

You should then check your contract to be sure that you haven’t consented to any deductions. 

If, after checking both these documents, you believe your employer has deducted your wages unlawfully, follow the guidance below. 

Scenario 1: Your employer underpays you for the time you’ve worked

The Employment Rights Act 1996 says your employer can’t make ‘unlawful deductions’ from your wages. These include:

• normal salary/wages  
• commission payments 
• overtime pay (if it’s in your contract) 
• bonus payments (in some circumstances) 
• statutory sick pay 
• statutory holiday pay 
• statutory maternity, paternity, adoption or shared parental pay.

What deductions are lawful? 

Your employer can make deductions to your wages if:  

• the law requires them to do so (e.g. tax and National Insurance payments)
• your contract authorises the deduction
• you consented to the deduction in writing.

Scenario 2: Your employer fails to pay the National Living Wage or National Minimum Wage

By law, there’s a minimum hourly rate that employers have to pay employees:

• For employees under the age of 21, the rate is called the National Minimum Wage.
• For employees over the age of 21, it’s called the National Living Wage.

These minimum hourly rates change every year. You can check the most up-to-date rates on the government website.

For the rest of this article, we’ll refer to the National Minimum Wage and the National Living Wage collectively as “the minimum wage”. 

Who gets the minimum wage? 

All employees and workers must be paid the minimum wage, whether they’re full time, part time or in training, including:  

• casual workers 
• workers on zero hours contracts 
• agency workers,
• apprentices
• workers from other countries.

The minimum wage doesn’t apply to:  

• self-employed people 
• volunteers 
• company directors 
• armed forces personnel 
• people doing work experience or shadowing
• children under school-leaving age.

What happens when the minimum wage changes?

From time to time, you may be entitled to a higher rate of pay as a result of minimum wage changes. This may happen when you move into a different age bracket or when the government increases the rates. 

If you expect your pay to increase in either of these scenarios, you might want to make sure your employer is aware of the change. However, any increase you’re entitled to won’t apply until the start of the next ‘pay reference period’. 

If you get paid weekly, the pay reference period is one week. If you get paid monthly, the pay reference period is one month.  

Here’s an example:

• Tina’s 21st birthday is on 8th May - from that date she’ll be entitled to the National Living Wage, which is higher than the National Minimum Wage 
• Tina gets paid monthly on the 25th of every month
• Her original rate of pay will apply up to 25th May
• Tina will get the new higher rate of pay from 26th May (the start of the next pay reference period).

Check you’re getting the minimum wage 

Your average hourly rate in each pay reference period (before your tax, National Insurance and pension contributions are deducted) must be no less than the relevant minimum wage for your age. 

If you’re paid monthly, your average hourly rate will be your monthly pay divided by the number of hours worked in that month. If you’re paid weekly, your average hourly rate will be your weekly pay divided by the number of hours worked in that week.  

You can use the government calculator to check you’re currently receiving the relevant minimum wage. You can also check if you received it in the previous year.

What to do if you’re not getting the minimum wage 

If you think you’ve been paid less than the minimum wage, it’s usually best to raise the issue with your employer first as it might have been an honest mistake. If this doesn’t resolve the issue, you may wish to raise a formal grievance.   

Some people are reluctant to complain if they’re not getting the minimum wage. They fear they’ll get given fewer hours in future, or even lose their job. However, it’s unlawful for your employer to treat you poorly (i.e. subject you to a detriment) because you asked to receive the minimum wage. 

You can learn more about detriment from Citizens Advice.  It is also automatically unfair for your employer to dismiss you for asserting your rights to the minimum wage. Learn more about automatic unfair dismissal.  

If you’re treated unfairly because your age means you’re entitled to a higher rate of pay, you could have a case for age discrimination.  

Making a claim for unlawful deduction of wages 

If your employer doesn’t correct the underpayment after you discuss it with them and raise a formal grievance, the next step is to either: 

• Report your employer to HMRC using this government form. HMRC will investigate your claim and, if they agree, will order your employer to give you the money you’re owed. The claim can go back up to six years
• Raise an Employment Tribunal claim for ‘unlawful deduction of wages’, as we explain below.

It’s important to note you can only take one of these actions – you can’t take both.

If you choose to raise an Employment Tribunal claim, you only have three months (less one day) from the date of the deduction in question to bring your claim. If you’ve experienced a series of deductions, it’s three months (less one day) from the most recent underpayment. Find out more about the timescales involved around Employment Tribunals.  

You can only claim for payments going back two years.

How to claim for a “breach of contract” underpayment 

When you leave your job, you’re entitled to a notice period. As a minimum, you should receive the statutory minimum notice period. Your contract may set out a longer notice period. 

Usually, you should receive your normal pay and benefits during your notice period. This is called notice pay. 

If you don’t receive your notice pay, you may have a claim for a type of breach of contract called wrongful dismissal. 

Making a claim for a breach of contract underpayment

There’s no minimum service period for a wrongful dismissal claim, but in the Employment Tribunal you only have three months less one day from when your employment ended to make a claim. 

How a breach of contract award is calculated

For a breach of contract claim in the Employment Tribunal, it’s typically just going to be notice pay that is available, although you can claim for any financial loss caused by a breach of your employment contract. If claiming for notice pay, this will be in accordance with whatever notice period was agreed in the contract. If none was explicitly agreed, then the judge will determine what they believe is reasonable. 

You can only claim for breach of contract in the Employment Tribunal if you are no longer working for the employer. The maximum compensation for this type of compensation in the Employment Tribunal is £25,000. Employees who are still working for the employer or who are seeking over £25,000 can do this in the county court in England or Wales or the sheriff court in Scotland.

How to claim for a redundancy underpayment

If you’re made redundant, and you’ve been employed for more than two years, you may be entitled to a statutory redundancy payment. The amount of money you get depends on:  

• your weekly pay (including regular overtime which is in your contract and any bonus / commission) 
• how long you’ve worked for your employer 
• your age.

You may also be entitled to an enhanced redundancy payment, if it’s in your contract.

How to make a claim for redundancy pay  

If you don’t receive your redundancy payment, you should write to your employer as soon as possible stating what you’re entitled to. You might want to include a copy of the calculation from the government website.   

You must make a claim for a redundancy payment within six months less one day of your employment ending or you risk losing your right to the money.

How a redundancy pay award is calculated

Redundancy pay awards are calculated based on age, length of service and gross weekly pay. 

You can use the government redundancy calculator to work out the amount you’re due.   

You should get the payment on your final pay date. It must be accompanied by a written statement explaining how it was calculated.    

Making a claim for a Working Time Regulations underpayment

When you’re owed holiday pay, you can make either an unlawful deduction from wages claim or a claim under the Working Time Regulations 1998. 

While both options are available, claiming for an unlawful deduction from wages may be the better option if you’ve been underpaid on multiple occasions over a period of time (e.g. once a month for several months). 

This is because unlawful deduction claims allow for a series of deductions. This means you can claim for a series of deductions going back up to two years, as long as each unlawful deduction took place less than three months apart. 

However, even if the unlawful deductions are more than three months apart, you may still be able to claim for them if they’re linked by the same underlying error.

The Working Time Regulations are not as flexible as the unlawful deduction from wages legislation, in relation to claiming holiday pay. In the scenario of multiple underpayments, there’s a time limit of three months less one day from the date of each individual deduction to start the Tribunal process. You’ll likely be unable to make a claim for any older deductions. This is because the Working Time Regulations do not contain a provision about claiming for a “series of deductions”. 

Real examples of successful underpayment claims

Here are some real examples of cases where the claimant successfully claimed for underpayment of wages:

• Miss A Odonnell v Mrs J Middleton

The claimant, a sandwich shop employee, was paid less than the National Living Wage for around a year and a half. She made a successful claim for unlawful deduction from wages and the judge awarded her £339.84 to account for the money she was owed.

• Mr A Osvald v Holden and Co LLP

This case was a claim for breach of contract. Prior to his start date as a trainee solicitor, the claimant was sent a written contract that changed his working location from the one he’d agreed verbally. The judge found that this change amounted to a breach of contract, which entitled the claimant to treat the contract as being at an end. The claimant was awarded £1,354 to account for his four-week notice period.

• Miss S McNeil and others v Primrose Court Health Care Ltd

When the claimant and a group of 12 others were made redundant, their employer failed to issue redundancy pay, notice pay and holiday pay. The group made a claim for redundancy pay, breach of contract in respect of the notice pay, and breach of the Working Time Regulations in relation to the holiday pay. 

The judge awarded each of them redundancy pay ranging from £495 to £9,504, notice pay ranging from £456 to £4,356, and holiday pay ranging from £68.33 to £244.86.