UK Pay, Deductions and Statutory Rates

Your rate of pay is a fundamental term of your employment contract. Your employer cannot change it without your agreement. A unilateral pay cut — one imposed without your consent — is a breach of contract. It may also amount to an unlawful deduction from wages under the Employment Rights Act 1996 (s.13), which prohibits deductions from wages not authorised by statute, a relevant provision in the contract, or prior written consent.

If your employer imposes a pay cut, you have three options. First, you can agree to it (expressly or by continuing to work without protest for a significant period). Second, you can refuse to accept it in writing, continue working, and bring an unlawful deductions claim in the Employment Tribunal for the shortfall (usually within 3 months). Third, if the pay cut is severe enough to amount to a fundamental breach of contract, you may be able to resign and claim constructive dismissal — though this requires 2 years' service.

Employers sometimes attempt a lawful variation by giving notice to terminate the old contract and offering re-engagement on new (lower-pay) terms. If you do not accept, you may be dismissed — and whether that dismissal is fair depends on whether there was a sound business reason and whether the employer consulted properly. Seek advice before deciding how to respond to any proposed pay cut.

Statutory Sick Pay (SSP) for 2026/27 is £123.25 per week (or 80% of your average weekly earnings if that is lower). It is paid by your employer from the first qualifying day of illness for up to 28 weeks. From 6 April 2026, the 3 unpaid 'waiting days' are abolished — SSP is now payable from day 1. Once you have exhausted 28 weeks of SSP, your employer should issue form SSP1 so you can claim Employment and Support Allowance (ESA) or Universal Credit from DWP.

From 6 April 2026, the eligibility rules are: you must be classed as an employee, you must have done some work for your employer, and you must be ill for at least one full working day. The old Lower Earnings Limit (LEL) qualifying condition is abolished — employees of any earnings level now qualify, provided they are genuinely ill and have worked at least one day for that employer.

SSP is paid through your employer's payroll and is subject to income tax and National Insurance in the usual way. If you are ill for repeated short periods (rather than one continuous period), you may be able to 'link' absences within 8 weeks of each other — linked periods count as one period of incapacity for the 28-week maximum.

The UK National Minimum Wage and National Living Wage rates from 1 April 2026 are: National Living Wage (aged 21+): £12.71/hr; Age 18–20: £10.85/hr; Age 16–17 and apprentices: £8.00/hr. The National Living Wage replaced the adult minimum wage for workers aged 23+ in 2016, and was extended to those aged 21+ from April 2024. These rates apply across England, Scotland, Wales, and Northern Ireland — there is no regional variation in the statutory minimum.

Your employer must pay you at least the minimum wage for every hour worked, including overtime. Minimum wage applies to most workers — employees, agency workers, and casual workers — but not to the genuinely self-employed. Common unlawful deductions that bring effective pay below minimum wage include: charging for uniforms, making deductions for tools, or making you work unpaid for activities like travel between sites, changing into workwear, or mandatory training.

If you believe you are being paid below minimum wage, you can report it to HMRC (who enforce the NMW) via the helpline (0800 917 2368) or online at gov.uk. HMRC can investigate, require your employer to pay arrears going back 6 years, and impose financial penalties. You can also bring a civil claim in the Employment Tribunal. There is no minimum service period — minimum wage applies from day one.

Salary sacrifice (or salary exchange) changes your employment contract: you give up the right to part of your future cash salary and your employer provides a benefit instead. Workplace pension contributions are the most common example. Cycle-to-work equipment and qualifying low-emission cars can also retain favourable treatment, while many other benefits are taxed under optional-remuneration rules.

For a qualifying pension arrangement in 2026/27, the sacrificed amount is paid as an employer pension contribution rather than cash earnings. An employee paying the standard main rates may avoid 20% basic-rate Income Tax and 8% employee National Insurance on that slice of pay; the standard employer National Insurance rate is 15%. A £100 pension sacrifice can therefore reduce take-home pay by roughly £72 for someone wholly within those bands, before student-loan, benefits or other payroll interactions. An employer decides whether to share any of its own saving.

Your reduced contractual cash pay can affect statutory maternity, paternity and sick pay, life cover, mortgage affordability and other salary-linked benefits. A salary sacrifice must not reduce cash earnings below the applicable National Minimum Wage. Ask whether your employer uses a notional pre-sacrifice salary for pensionable pay and workplace benefits.

From 6 April 2029, the National Insurance exemption for pension contributions made through salary sacrifice is scheduled to be capped at £2,000 a year. Contributions above the cap will attract employee and employer National Insurance, although their Income Tax treatment remains unchanged. That future reform does not apply to the 2026/27 figures above.

Auto-enrolment is a legal requirement under the Pensions Act 2008. Employers must automatically enrol any worker aged 22 to state pension age who earns above £10,000 per year (the earnings trigger) into a qualifying workplace pension scheme. Workers aged 16–21 or over state pension age who earn above the lower earnings limit (£6,240) can opt in.

Minimum total contributions must be at least 8% of qualifying earnings (earnings between £6,240 and £50,270 per year). Your employer must contribute at least 3%; you contribute the remainder (5%), which is boosted by tax relief at your marginal rate. Many employers contribute more than the minimum — check your contract or scheme documentation.

You have the right to opt out within one month of being enrolled and receive a full refund of contributions made. However, your employer will re-enrol you every 3 years. Opting out means losing your employer's contribution — usually an unwise financial decision. The Pensions Regulator (TPR) enforces auto-enrolment compliance.

Under the Employment Rights Act 1996 (Part II), employers can only make deductions from wages in three circumstances: the deduction is required by law (e.g. income tax, National Insurance, court attachment orders); it is authorised by the employee's written contract (e.g. salary sacrifice, contractual pension); or the employee has given written consent in advance of the specific deduction.

Unlawful deductions include: charging for uniforms or equipment without prior written consent; clawing back training costs without a prior written agreement; deducting for stock shortages or cash register errors in retail (unless there is a specific contractual provision); or making deductions that bring pay below the National Minimum Wage.

If your employer makes an unlawful deduction, you can bring an unlawful deduction from wages claim at the Employment Tribunal (no minimum service required). The time limit is 3 months from the date of the deduction. You can recover all unlawfully deducted amounts going back up to 2 years from the date of claim.

Under the Working Time Regulations 1998, employees accrue statutory holiday (5.6 weeks per year for a full-time worker) from day one of employment. When your employment ends, your employer must pay you for any statutory leave you have accrued but not taken. This payment is called 'holiday pay in lieu' and is calculated on the same basis as normal holiday pay.

Accrued holiday pay on termination is calculated pro-rata to the portion of the leave year worked. If you work full-time and the leave year runs April to March, and you leave in September having taken 10 days of your 28-day entitlement, you are owed pay for (14 – 10) = 4 days. Your employer cannot simply refuse to pay — failure to pay is an unlawful deduction from wages.

Employers can require you to take accrued holiday during your notice period (with the correct notice under WTR 1998 reg.15). But if there is not enough notice time for you to take all accrued leave, they must pay for the remainder. Your contract may give you enhanced holiday above 5.6 weeks — any contractual entitlement is governed by the contract terms.

The National Living Wage (NLW) is the statutory minimum wage rate for workers aged 21 and over in the UK. From 1 April 2026, the rates are: NLW (21+): £12.71/hr; 18–20 rate: £10.85/hr; 16–17 and apprentice rate: £8.00/hr. These rates apply to all eligible workers across England, Scotland, Wales, and Northern Ireland.

The NLW is set by the government each April following a recommendation from the Low Pay Commission. Workers are entitled to at least the NMW/NLW for every hour they actually work, including time spent on mandatory training, travel between sites, and working before or after their official shift if required by the employer.

Enforcement is by HMRC's National Minimum Wage compliance team. Workers can report non-compliance via HMRC's helpline (0800 917 2368) or online. Employers who fail to pay the minimum wage face back-pay orders (going back up to 6 years), financial penalties of up to 200% of underpayment, and public naming.