There may come a time when you’re unable to pay staff wages. If this happens, you may be wondering whether you could face legal action, is it illegal to not pay employees on time, or how badly it could damage your relationship with your staff.
In this guide, we explain British law on the matter and what it could mean for you.
Employer not paying wages on time
The date an employee gets paid takes on an important significance – everyone arranges payment of their direct debits and other bills around the day they get paid. So, if wages are paid late, this can pose a practical problem that is more than unhappy employees.
Wages not paid on time – legal consideration
Is it illegal for employers to not pay on time? The law on payment of wages is set out in the Employment Rights Act 1996: it covers the need to inform employees in their contract of employment, the date on which they will be paid, as well as other details such as how they will be paid etc.
The Act also creates an entitlement for an employee to take their employer to employment tribunal for an unlawful deduction of wages.
Technically, not paying employees on time is a deduction from wages. Payment one or two days late would solve that situation. But this does not mean slight delays in receiving payment are always acceptable. Steps should always be taken to ensure wages are distributed on time.
As the payment date is a contractual term, failure to adhere to this can be a breach of contract, which opens up employers to a different legal claim. Employees have the right to sue their employers if they feel there has been a breach in their employment contract. It should be noted that these claims can potentially result in compensation figures of up to £25,000 if it is found that there was a breach.
Reasons for salary not being paid on time
Delays in payment can come about for various reasons. If mistakes are made during the payroll process that will mean pay is to be delayed, you should explain the situation to your employees.
Steps should be taken to identify how the mistake occurred and how employees can be assured that it won’t happen again. It’s common for us here at Peninsula to be asked by disgruntled staff: “Can I sue my employer for not paying me?”.
If this is down to another reason, such as a lack of funds, employers should be advised of the situation. An employer not paying on time can create concerns about the future of their role. You should explain the position to your staff and offer reassurance that everything is being done to rectify the situation.
Late wage payments may be part of a larger picture requiring other action to be taken. For example, layoffs or redundancies. This is distressing for your employees, so the more information you provide them with the better.