A complete guide to managing pay disputes

During a pay dispute, both employers and employees must manage the conflict with care, and by following the law regarding how to pay employees.

Employers should adopt a conciliatory tone and show empathy towards this emotive subject. Employees must be honest and realistic in their demands. Both sides should try to resolve a pay dispute quickly and without recourse to legal action. Each party may require external advice from solicitors or trade unions on managing pay disputes.

This article will cover what a pay dispute is, the parties usually involved, the rules that govern pay disputes, how employers should manage pay disputes, how employees should approach pay disputes, and the role external bodies can play.

What is a pay dispute?

Pay disputes usually arise when an individual or team of employees believe they are not paid enough for the job they do, and the value it provides their employer.

Pay disputes are common and can manifest themselves from a range of issues, including (but not limited to):

• Employees believing that they are paid less than others for doing the same job
• Employees believing that they are not sufficiently rewarded for their skills and efforts
• Employees believing that they are being discriminated against

That said, most pay disputes arise from late payments, underpaid bonuses or overtime, or unpaid holiday pay. They are usually due to administrative or HR and payroll software errors, and can be resolved quickly and easily.

Checking payslips, which show pay and deductions, is a good way to find out whether there is an obvious reason for the error. If you use a payroll service provider, they can explain any details you don’t understand.

Pay disputes need to be resolved carefully by trained HR teams before they escalate and potentially impact staff morale. Low staff morale can affect how employees perform in their roles, which can impact the company’s financial performance.

For a startup with few personnel and resources, managing a pay dispute can be challenging. It can quickly impact business performance as key staff become focused on resolving a pay dispute, switching their attention from other vital functions. So it’s vital to have strategies in place that set out how to manage pay disputes.

What are the laws governing pay disputes?

When it comes to pay disputes, there are a few rules that employers must follow:

• Employers must pay employees the amount agreed in their contract
• All employees must receive a contract outlining their agreed salary, bonus entitlement, and rules regarding holiday pay, sick pay, and other statutory payments
• Employees are allowed to raise pay disputes with their employer, who must respond
• If the initial response does not resolve the pay dispute, the employee can make a formal grievance. The employer must respond, as set out in employment law

An employment contract should outline legally enforceable terms and conditions for the working relationship between the company and employee, including pay entitlements, bonuses, and national minimum or living wage obligations. If these are not adhered to, it is a breach of contract or an unlawful deduction of wages under the 1996 act.

What pay are employees entitled to?

Employees must be paid their contractually agreed wages at the agreed regular intervals.

Under Part II of the Employment Rights Act 1996, in certain circumstances, employers can withhold or deduct wages if the deduction is to pay income tax or National Insurance Contributions (NICs), is made under an employment contract, or has been consented to by the employee.

There are also circumstances when an employer can deduct pay lawfully, for example, if an employee has been overpaid.

If an employer does not pay an employee or pays them less than legally required, it is treated as an unlawful deduction of wages. This includes the amount paid for bonus schemes, commission, and holiday, maternity, paternity, and sick pay.

Who is normally involved in a pay dispute?

A standard pay dispute usually involves an employee, their manager, and/or the person who decides their pay (if that isn’t their manager). A formal dispute can also include HR teams, more senior managers, trade union representatives, and, if the dispute is not resolved, potentially external legal teams.

Trade unions often have a role to play. According to a Department for Business and Trade report from May 2023, 22.3% of the UK workforce – or 6.2 million people – were members of trade unions in 2022. Trade unions can undertake collective bargaining between employers and employees and find solutions that are acceptable to both parties.

How should a startup employer manage a pay dispute?

Startups should aim to resolve pay disputes quickly, and learn from the issues that caused them to stop them from happening again.

The most effective strategy to avoid pay disputes is to give employees regular pay reviews, either annually, or when an employee is promoted or takes on new responsibilities in their current role.

Pay reviews allow both sides to communicate openly. Employers can hear why an employee might think they should be paid more, and employees receive their employer’s perspective on issues that may limit what they can offer.

Employers should use fair salary structures that consider each employee’s performance, skills and experience. The startup’s salary structure should be transparent, allowing employees to understand how their pay is decided.

Regular pay reviews and fair salary structures should help prevent pay disputes, but if one develops, effective communication becomes a vital tool in managing a pay dispute. Of course, it is possible that a pay review itself could cause a pay dispute, if an employee disagrees with the outcome of the pay review. In this scenario, the employee should raise their concerns with their line manager and request a further review.

Open, honest and clear communication between managers and employees helps both parties to understand each other’s concerns, creating a suitable environment to ask questions, air grievances, and clarify issues.

It’s best to hold meetings with the employee in question to try to resolve the pay dispute. Towards the end of the meeting, clearly outline to the employee what the next steps are, and provide clear lines of communication with them afterwards.

If an employee sends a written notice of the grievance, their employer must respond. They should investigate the matter, give the employee a written explanation of their decision, and outline how to appeal the decision.

Employers and their representatives need to stay impartial, even if they are personally involved. This helps foster effective communication, which should help resolve the pay dispute. If remaining impartial is impossible, consider using an external body to resolve the pay dispute.

Read more: the essential laws and responsibilities for employing contractors

How should employees approach pay disputes?

Employees need to approach a pay dispute with resolve, but also understand the employer’s point of view. It is normally best to resolve a pay dispute without resorting to legal action.

Some employers are unreasonable and use unfair practices, in which case you should protect your rights. The Advisory, Conciliation and Arbitration service (ACAS) offers free and impartial advice on employment rights.

Raising a pay dispute

If you have an issue with your pay, discuss it with your line manager first.

If this initial conversation fails to resolve the issue, ask for a formal conversation with your employer. Prepare carefully by making notes on the issue, and decide what you will say about it.

For employees who are raising a pay dispute because they believe they have been paid incorrectly, they should gather details, including relevant dates, letters, emails, pay agreements, and your contract to use as evidence. This will establish the circumstances of the pay dispute and inform how to approach negotiations.

Employees involved in a pay dispute because they feel they are underpaid for the role they perform or compared to peers who are performing a similar job, may need to provide different forms of evidence. This could include performance data if available, for instance, the value of orders over a period if they work in sales, the amount of units produced over a specified period if they work in manufacturing or how many new followers, ‘likes’ or retweets, if they perform a social media/marketing role.

The most important element is to decide what outcome you want from the pay dispute and back that up with appropriate evidence.

When meeting your employer representative, arrange for someone to attend with you for support, to function as a witness, and to take notes on the agreements made and when they will be implemented. This can be used as evidence if the dispute is taken further, for instance to a tribunal.

At the meeting, explain your grievances and ask what your employer proposes to do about them. Tell them what you want to happen and present any evidence to support your argument.

If your employer does not agree to a meeting, write a formal letter or email to them, outlining the details of the pay dispute. If the employer agrees an error has been made, they should pay what is owed as soon as possible. For employees involved in a pay dispute due to believing they are underpaid for the role they perform, the process of resolution may be more complex and take longer to agree. It could involve the employer needing to undertake extra research, for instance salary benchmarking – comparing salaries for similar roles in similar industries – or analysing employee productivity and performance data.

Further action

If the pay dispute is not resolved, you may need to take your employer to an employment tribunal, but you must go through the early conciliatory process first. ACAS can advise on this.

If you are not happy with the resolution, you should put the grievance in writing, and offer the employer a timeframe to resolve the dispute – usually one or two weeks.

Conclusion

Managing a pay dispute is a difficult task for both employers and employees. As an employer, it is important to have an empathetic approach and aim to understand the employee’s grievance so the matter can be resolved quickly.

Employers need to follow a set path to manage a pay dispute, and try to communicate clearly and openly with employees. This helps to resolve pay disputes, and can help stop them from occurring in the first place.

Employees need to set out the issue clearly and honestly and back up their dispute with any written evidence to support their claim.

Benjamin Salisbury - business journalist

Benjamin Salisbury is an experienced writer, editor and journalist who has worked for national newspapers, leading consumer websites like This Is Money and MoneySavingExpert.com, business analysts including Environment Analyst, AIM Group and written articles for professional bodies and financial companies. He covers news, personal finance, business, startups and property.