Deferred salary agreement leads to £12,660 award for unpaid wages and holiday pay

When a deferral agreement backfires

This case shows what can happen when an employee agrees to defer their salary to help a struggling employer. The senior manager started work in March 2021 on a £2,500 gross monthly salary, but agreed not to be paid until the company's cash flow improved. She received her first payment in August 2021 and was paid monthly from then until January 2022. However, she was never paid for March to July 2021, and when she was dismissed at the end of February 2022, she received nothing for her final month of work.

The employer argued that the claimant had only started work in August 2021, but the tribunal rejected this, noting that the claimant had been working four days a week from March and had exchanged texts about owed sums in June. The tribunal also found that the employer had deducted holiday pay from the final payment without the claimant's authorisation, and had not paid for 7.4 days of accrued but untaken annual leave.

What the employer could have done differently

The employer could have avoided this claim by keeping clear records of the deferral agreement and ensuring that deferred wages were paid once cash flow improved. Instead, it left the claimant unpaid for five months and then tried to argue she had not started work until later. The unauthorised deduction of holiday pay was a further misstep – employers should never deduct holiday pay without the employee's written consent.

Why this matters for similar claims

This case is a reminder that even employees with less than two years' service can bring claims for unpaid wages and holiday pay. The unfair dismissal claim was struck out because the claimant did not have the required two years' service, but the tribunal still awarded over £12,600 for the unpaid sums. Employees who agree to defer salary should ensure the terms are recorded in writing, and employers should treat deferred wages as a debt that must be repaid, not a gift.