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Small business owners have many payments and costs to budget for, including salaries and wages. However, sometimes, high outgoing costs or low incoming cash flow can prompt you as an owner to make difficult decisions about which costs to pay first. Nonetheless, as an employer, you must ensure timely payment practices for your employees. This article will explain the legal limits on late payments and the consequences of not paying your employees on time.
What is the Law on Paying Wages?
The law concerning the payment of wages is in the Employment Rights Act 1996 (‘Employment Rights Act’). It details that your employees have a right to be paid. It also contains rules about the payment of wages, such as that you must:
- tell employees the date you will pay them; and
- let your employees know how you will pay them.
Can I Pay My Employee Late?
Under the Employment Rights Act, it can be illegal for you as an employer to pay your employee’s salaries late. This includes whether it is a one-off late payment or occurs regularly. It also consists of all types of wages, so, for example, the law covers:
- salaries;
- commission;
- bonuses;
- one-off payments such as overtime;
- notice pay;
- holiday pay; and
- Statutory Sick Pay (SSP).
Paying wages late means you have made an unlawful deduction of wages. However, the unlawful action may be justified if the salaries are only a few days late.
Breach of Contract
Paying your staff late wages could also mean you breach your employment contracts. This will occur where it has a payment date clause or payment terms. This means that payments that are late and are not covered as unlawful by the Employment Rights Act can be a breach of contract, such as, for example:
- pensions;
- expenses;
- allowances;
- loans; and
- benefits.
Withholding Pay
Although paying your employees’ wages late is illegal, there are a few circumstances in which you can legally withhold their pay. This can only occur if your employee’s contract lists the instances when you may do so. For example, you may state that you can deduct wages where they make a mistake (although this is not good practice) or reclaim money where you overpaid them. However, times when you cannot withhold pay include:
- when your employee quits without notice; and
- after terminating your employee’s contract.
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What Might My Employee Do if I Pay Their Salary Late?
It is crucial that you try to avoid paying your employees late, but if you do find you have to, you should let them know as soon as possible.
If you pay your employees late, they will likely first speak to you about this to try to sort it out. Importantly, you should ensure that these discussions follow any applicable pay policies or guidelines that outline how to deal with late pay. Furthermore, where your employee cannot resolve the issue with you, they may file a grievance that you will have to deal with formally.
Ultimately, an unresolved late payment may allow your employee to take legal action and raise a claim with an employment tribunal. In addition, if not paying your employee on time constitutes a breach of contract, your employee could make a court claim for a contractual breach. If their case is successful, you could end up paying compensation of up to £25,000 in a county court.
As an employer, it is crucial to stay compliant with ever-evolving employment law. This factsheet outlines key changes in 2024 that will affect how you manage your workforce.
Key Takeaways
Prompt payment of your employees is an essential responsibility you have as an employer. In failing to do so, you may be making an unlawful deduction of wages or breaching your employment contract. There may, however, be limited circumstances when you can withhold pay. If you pay your employees late and cannot resolve this, they can take legal action. This may be an employment claim in a tribunal, or a contractual claim in court against you.
If you need help navigating the risks of late payments to your employees, LegalVision’s experienced employment lawyers in the UK can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
If you pay your employee’s wages late and do not quickly resolve this issue, they could, for example, make a claim against you in an employment tribunal.
It is illegal to pay your employees wages late, but if you do this only as a one-off and only pay them a couple of days late, this could remedy the situation.
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