Tricky Issues Relating To Pay

Posted in : HR Updates on 9 April 2015
Helen O'Brien
Personnel and Training Services
Issues covered:

Pay is one of the most sensitive issues that employers need to deal with. When there are disputes over issues such as calculating a bonus, reclaiming an overpayment or something similar, the situation can easily become very tense.

Paying the National Minimum Wage

It is widely understood that employees must be paid an amount that is not less than the National Minimum Wage (NMW). However, it is also widely understood that when we receive our payslip each week or month there is a gross amount and a net amount – with the net amount being what we actually receive after deductions have been made. Does the employee have to be paid the NMW before or after those deductions?

As long as the gross pay is more than the NMW, the following deductions can be made even if this means that the net amount is less than the NMW:
PAYE and National Insurance.

  • Repayment of a loan or advance of wages.
  • Repayment of an accidental overpayment by an employer in a previous month/week.
  • Subscriptions (eg to a charity) or deductions that the employee has agreed to (eg to a pension scheme).
  • Any contractual deductions (for example, an agreement to repay the cost of a training course – as in the case reported here).

Note also that an employer can make deductions if the employee is taking strike action. The NMW is calculated according to the number of hours of work; of course, if an employee is taking strike action then he or she is not working.

Paying notice as a lump sum

When an employee is leaving the organisation, whether they have resigned or you have terminated the employment, it can sometimes be useful to ask them not to work their notice.

This is typically when it would be disruptive for some reason for the employee to remain at work. It is possible to pay the employee an amount equal to what they would have been paid if they had worked their notice (referred to as pay in lieu of notice). However, there should be a clause in the employee’s contract of employment allowing you to do this, or you should get the employee’s express agreement (and ensure that this is recorded in writing).

To avoid any future confusion, always ensure that agreements that are reached are confirmed in writing, and that both you and the employee sign a copy of the agreement.

Dealing with overpayments

Unfortunately, there are times when employees do not receive the correct payment. This could be due to a clerical error, a miscalculation or a misunderstanding in the communication between the line manager and the payroll department. Regardless of the reason for an overpayment, what can you do to resolve the situation?

If you have overpaid an employee then you should start by working out the amount of overpayment. You should then meet with the employee to explain the situation, and to work through the pay records to explain how the overpayment has arisen. You should then agree with the employee how the overpaid amount is to be reclaimed. If it is a small amount, it could be appropriate to reclaim it all in the next salary payment.

However, if it is more than a small amount (and the employee has to have some input into deciding what might be small because it is the employee who is going to lose the money from the next payment) a repayment plan must be agreed. This is likely to involve deducting a percentage of the overpayment from salary payments over a number of weeks or months.

Once the agreement has been reached, it should be recorded in writing and the employee asked to sign the document to indicate agreement to the deductions.

This article is correct at 19/10/2015

The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.

Helen O'Brien
Personnel and Training Services

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