1. Salary deductions

One of the most common causes of pay disputes is employers making deductions from wages without proper authority. Gareth Edwards, Head of Employment at law firm VWV explains: "You can only deduct from a worker's pay if the deduction is required by statute, such as tax or national insurance, is allowed under the employment contract, or where the worker has agreed to the deduction in writing beforehand.”

Businesses can trip up when recovering training costs, making deductions to pay for damaged goods or docking pay for poor performance without any contractual right to do so. Strict rules also apply in relation to an amount which can be deducted from a retail employee regarding till shortfalls.

“Overpayment recovery is a legal exception to the rules but doing it without proper communication or in large lump sums can still trigger disputes,” warns Edwards. Employers should check contracts before making a deduction and agree the deduction if the contract is silent.

Freeths’ Employment Director Amanda Trewhella says: “Even where a contract provides that an amount may be deducted from the employee’s pay if certain circumstances arise, such as their breach of contract, there can still be circumstances where the contractual clause cannot be enforced, if the clause is in fact a penalty clause.”

Employers must also consider whether the making of the deduction would reduce the employee’s salary below their National Minimum Wage entitlement.

2. Holiday pay

If employees regularly receive overtime, commission or other payments that are closely linked to the work they do, these may also need to be included when calculating holiday pay, explains Jonathan Insley, Partner and Head of Employment at Ellisons.

Trewhella adds: “Errors can also be made when calculating holiday pay when an employee’s employment is terminated and in respect of the circumstances in which employees can carry forward holidays from one holiday year to the next.”

As working patterns have become more varied, it’s important to make sure payroll systems reflect the current rules, Insley says. “Getting it wrong can lead to claims for unlawful deductions from wages and significant liabilities if underpayments have built up over time. Regularly reviewing your holiday pay calculations is a sensible way to reduce the risk of costly mistakes.”

From April 2026, employers must also keep records for six years showing they've paid holiday correctly, and the new Fair Work Agency has flagged holiday pay as a priority for enforcement.

3. Minimum wage

Many employers simply divide total pay by total hours and assume they're compliant, but the law requires you to assess compliance across specific pay reference periods, typically each pay cycle, using the correct statutory calculation, Edwards explains.

“Deductions for uniforms, salary sacrifice arrangements, unpaid time spent preparing for shifts or travelling between jobs can all reduce pay below the legal minimum without employers realising it,” Insley says.

“HMRC continues to treat National Minimum Wage compliance as a key enforcement priority, and businesses that fall short may have to repay arrears, pay financial penalties and could also face reputational damage if they’re publicly named.”

Catrin Mills, Employment Partner at law firm Sharpe Pritchard says employers should conduct regular minimum wage audits, review working practices as well as headline rates of pay and monitor salary sacrifice and benefit arrangements carefully. “Pay particular attention to apprentices, younger workers and staff with variable hours,” she says.

4. Equal pay

Men and women doing equal work must receive equal pay. Although differences in pay may have developed over many years through recruitment decisions, individual negotiations or historic market pressures, if those differences cannot be objectively justified, employers may face equal pay or discrimination claims, Mills says. 

“Pay differences can be justified where there is a genuine, non-discriminatory reason, such as location, qualifications, or market forces, but the burden is on the employer to show that and equal pay claims can be costly and reputationally damaging to defend,” Edwards explains.

Larger employers already have to publish gender pay gap reports, and from spring 2027 businesses with 250 or more employees will also be required to produce equality action plans setting out the steps they are taking to address their gender pay gaps.

“Even for employers below that threshold, now is a good time to review pay structures, ensure roles of equal value are rewarded consistently, and be ready to explain any differences,” Edwards says.

5. Commission and bonus schemes

A common area of dispute, particularly with senior executives, is in relation to the payment of bonuses. This may include:

• whether or not KPI’s were achieved,
• when an employee is given or receives notice, or
• when an employee is dismissed prior to a bonus being paid. 

“Given the upcoming removal of the statutory cap on unfair dismissal liability in January 2027 this is an area where we are likely to see further litigation and it is advisable for employers to check their bonus scheme provisions to ensure that they are sufficiently clear,” Trewhella says.

Insley says employers should make sure any terms set out whether payments are contractual or genuinely discretionary and what happens if an employee leaves before a payment falls due.

“Simply describing a bonus as ‘discretionary’ won’t always prevent a claim if, in practice, bonuses have been paid consistently and employees have come to regard them as an entitlement,” he warns.

Avoiding ambiguity is key, says Liam Entwistle, employment law specialist at Wright, Johnston & Mackenzie. “Make it very clear what an employee has to do to earn a bonus, and how much they are going to get,” he says.

“For example, lots of schemes refer to ‘profit’, but there are several kinds of profit. Is there anything else an employer would want taken into account before fixing a final figure against which bonuses are considered?”

6. Pay governance

Line managers who informally promise pay rises or bonuses without proper authorisation can inadvertently create binding commitments, and where a trade union is recognised, bypassing it on pay can carry significant penalties.

“Pay decisions should always go through the right channels; getting the process wrong creates legal exposure and can feed into equal pay risk if decisions are made inconsistently," Edwards says.

Mills says problems often arise around bonuses, commission, overtime, allowances, salary reviews and benefits. “Employers sometimes rely on historic custom and practice or informal arrangements without clearly documenting them,” she says. “Employees may then assume a payment is contractual when the employer believes it is discretionary.”

Employment contracts should clearly explain all elements of pay and specify whether bonuses and incentives are contractual or discretionary. “Regularly review contracts and policies to ensure they reflect actual practice and train managers not to make promises about pay they are not authorised to make,” Mills advises.

7. Changes to employee circumstances

Another common oversight is not to keep up with an employee’s situation, for example if they are on sickness absence, or maternity or other type of family leave.

“Where an employee’s entitlement to pay reduces over time, for example where sick pay should be paid on the basis of full pay for a limited period, before reducing to half pay or statutory sick pay, it can be easy to forget to reduce an employee’s salary accordingly,” Mills says. Overpayments can be difficult to undo once the mistake has been made.