‘Pay When Paid’ Clauses: What Are They?

A ‘pay when paid’ clause prevents someone from receiving their earnings until payment has been given by another party to their employer. You may be thinking, Hang on, this doesn’t sound right? That’s because pay when paid clauses are technically illegal. 

If you’re an employer, paying your employees is one of the main obligations you have towards your hardworking staff. As a result, there’s a number of strict regulations around paying employees that have been put in place for their overall protection. As an employer, it’s your duty to make sure you adhere to these strict regulations and ensure that your Employment Contracts aren’t in breach of any UK regulations. 

Keep reading to know more about pay when paid clauses and how you can avoid using them.  

What Is Pay When Paid Clause In The UK?  

As we noted, pay when paid clauses determines that an employee is to be paid when their employer receives payment from another contract. Generally, pay when paid clauses have been seen in construction contracts, although this doesn’t mean other industries don’t try and utilise them.

Let’s take a look at this in more detail. 

When a business signs a contract to do a particular job, they may hire contractors or employees to help complete that task. As any good employer does, they’ll have their staff sign an employment agreement. In this context, they’ll agree on an amount the employee is to be paid for their work. However, instead of giving a date for payment, the contract will state the employer will only pay the employee once they have been paid by the client they are working for. 

Are Pay When Paid Clauses Legal?

No, pay when paid clauses are strictly illegal. If these clauses are found to be in a contract, they will be considered void. That means, the pay when paid clause will not apply at all. Additionally, the UK has a Construction Act, which protects the rights of contractors in certain industries and covers things like pay when paid clauses. 

As an employer, you cannot withhold payment for your employees and wait for someone else to pay you. Rather, your employment contracts with them should clearly state how much they will be paid and when. On top of this, all employment contracts are required to cover other matters such as pension contributions, overtime pay and entitlements. If you’re an employer, it’s imperative you take a look at your employment contracts to make sure they are covering everything necessary. If you’re not sure what to look out for, our legal experts would be happy to help.  

Williams Tarr Construction Ltd v Anthony Roylance Ltd 

In 2018, Williams Tarr Construction sought a review of a decision by the UK High Court. Williams Tarr Construction was the head contractor in a project where their subcontractor, Anthony Roylance had asked for the release of a security payment. Williams Tarr Construction refused to do this and wanted to wait for the completion of a task, however Anthony Roylance argued this was an unlawful practice. 

The adjudicator presiding over the matter agreed with Anthony Roylance and noted the clause was illegal and Williams Tarr Construction could not withhold the payment from Anthony Roylance. 

When Williams Tarr Construction challenged the decision in the High Court, the UK High Court upheld the original decision which favoured Anthony Roylance. This case strongly reaffirmed the illegality of pay when paid clauses and anything similar to it. 

What If My Contract Says Pay When Paid? 

If your employment contracts say pay when paid, you need to get this fixed immediately. Having an illegal clause in your contracts is an open invitation for trouble. 

Your employment contracts need to clearly follow UK Employment Law practices. Remember, a signed contract isn’t necessarily legally enforceable under all circumstances. UK legal principles still apply and contractual clauses cannot override them. So, a contract that is based on something unlawful such as a pay when paid clause will likely not be upheld, as the law comes before the contract.   

Ensuring your contracts are legally compliant with UK Employment Law and other relevant regulations is the best way to ensure they are enforceable. As such, it’s important to assess your employment contracts for other clauses that may not be in line with the law. Just like pay when paid clauses, having illegal clauses in your contracts can make those clauses void or lead to harsher legal consequences – not to mention a loss of reputation for your business. It’s best to have your Contracts Reviewed by a legal expert. 

When Does A Final Pay Have To Be Paid?

A question we get asked often when it comes to paying employees, is their final pay. When you’re an employer, you need to be prepared in case your employees decide to leave your business. This means, tying up a work matters and ensuring they have received everything they are entitled to in a timely manner. 

The final pay of employees is usually paid on their normal payday following their last day at work. This timeframe can differ based on any awards and entitlements the employee may be under, so it’s best to check with a legal expert to ensure you’re doing your best to be legally compliant towards your employees. 

Next Steps 

Pay when paid clauses are strictly illegal. It’s important to have your Contracts Reviewed by a legal expert to ensure they don’t contain any clauses that resemble pay when paid clauses. Additionally, it’s crucial that your contracts are legally compliant in all ways, so you can avoid legal troubles down the line. To summarise what we’ve discussed: 

• Pay when paid clauses delay employee payment until the employer receives payment from a client
• These clauses are illegal and void in the UK.
• Employers must adhere to strict regulations for paying employees
• Pay when paid clauses are often seen in construction contracts
• Contracts should specify the payment amount and date without relying on client payments
• If your contract contains a pay when paid clause, you should rectify it immediately 
• Legal principles take precedence over contractual clauses 
• Final pay for employees is typically due on their normal payday following their last working day 

If you would like a consultation on pay when paid clauses, you can reach us at 08081347754 or [email protected] for a free, no-obligations chat.

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