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.
At Employment Tribunal, there are four types of underpayment claims that employees can make:
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:
You can find out if your employer is insolvent using the Companies House website.
There are two scenarios for unlawful deduction of wages:
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.
The Employment Rights Act 1996 says your employer can’t make ‘unlawful deductions’ from your wages. These include:
Your employer can make deductions to your wages if:
By law, there’s a minimum hourly rate that employers have to pay employees:
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”.
All employees and workers must be paid the minimum wage, whether they’re full time, part time or in training, including:
The minimum wage doesn’t apply to:
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:
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.
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.
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:
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.
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.
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.
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.
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:
You may also be entitled to an enhanced redundancy payment, if it’s in your contract.
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.
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.
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”.
Here are some real examples of cases where the claimant successfully claimed for underpayment of wages:
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.
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.
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.