Is it illegal to take back a pay rise from your staff?

  • Pay & Benefits
Peninsula Logo

Peninsula Group, HR and Health & Safety Experts

(Last updated )

Read our article: 'Is it illegal to take back a pay rise from your staff?'. Contact us today for more information about our Employment Law, Health & Safety, and HR services.

Every employee loves a raise. It’s one of the best ways to reward your hard-working staff. And it stops them from having their heads turned by businesses offering higher salaries. But there may be times when you feel the need to retract a pay rise, either as a punishment or out of necessity. So does the law allow you to do this? While it’s not illegal, you need to have a good reason to revoke a pay rise. Here are the three most common situations where you might be tempted to do so… 1. Your employee is underperforming More and more companies are linking pay rises to staff performance. The idea is that by doing so, you’ll be motivating your workers to be more efficient and effective. If one employee notices that another is being rewarded for his hard work, he’ll be more likely to up his game too. But what happens if, after you’ve bumped up someone’s salary, they start slacking? Can you take their pay rise away from them because of poor performance? You can, but it’s tricky because your employee’s salary is part of their contract. And like any other change to a contract, you have to negotiate it with your worker, who probably won’t be too happy their pay is going back to the old rate. Instead of docking your employee’s pay straight away, try to find out what’s causing the drop in performance and whether you can do anything to bring it back up. 2. Your business is having a downturn If your business is going through tough times, you need to cut costs to survive. While it’s not ideal, rescinding pay rises is one way to bring down your expenses. Once again, your staff might feel angry that you’re taking away their pay rises. Explain to them that if you don’t take these measures, you might have to make some of them redundant. This scenario is easier to justify than retracting pay rises because of poor performance since you have a clear and urgent business need. 3. Breach of confidentiality Many businesses consider it unprofessional for employees to discuss their salaries and pay rises with each other. This is because it can create a toxic atmosphere of jealousy and resentment if one employee gets a pay rise and another doesn’t. To discourage staff from talking about what you pay them, you could put a confidentiality clause in their contracts. This will give you the power to retract a pay rise if your employee is indiscreet. 4. Handle with care Retracting a pay rise isn’t something you should do off-hand. If you go about it the wrong way, retracting a pay rise could have a devastating effect on staff morale. So whatever your reasons are, it’s vital that you communicate with your employees. Be clear about why you want to take away their pay rise, and give them a chance to suggest alternatives. You should also tell them in advance, rather than letting them find out when they look at their payslip. To avoid expensive legal claims, retracting pay rises should always be used a last resort.


Got a question? Check whether we’ve already answered it for you…

Related articles

  • a female worker with her head in her hands


    Peninsula GroupHR and Health & Safety Experts
    • Employment Tribunal
  • Cocaine at work


    Peninsula GroupHR and Health & Safety Experts
    • Employment Tribunal
  • Retail staff behind counter


    The dos and don’ts of employing seasonal staff

    Hiring seasonal staff comes with its fair share of dos and don’ts. Here, we break those down for you…

    Peninsula TeamPeninsula Team
    • Employment Contract
Back to resource hub

Try Brainbox for free today

When AI meets 40 years of Peninsula expertise... you get instant, expert answers to your HR and health & safety questions

Sign up to our newsletter

Get the latest news & tips that matter most to your business in our monthly newsletter.

International sites

© 2023 Peninsula Business Services Limited. Registered Office: The Peninsula, Victoria Place, Manchester, M4 4FB. Registered in England and Wales No: 1702759. Peninsula Business Services Limited is authorised and regulated by the Financial Conduct Authority for the sale of non-investment insurance contracts.

ISO 27001 and 9001 accredited company.
The Sunday Times - Top Track 250.
Glassdoor 2018 Best Places To Work.