Deductions below National Minimum Wage

The National Minimum Wage Regulations (2015) outline the statutory minimum rate of pay which all workers must receive and the deductions which can lawfully be taken from a worker’s salary. The common deductions include national insurance and income tax, but can also extend to student loan repayments and pension contributions etc. These deductions must be agreed in writing so are normally included in the employment contract.

Unless an exemption applies (such as the ones listed above), deductions cannot reduce pay below the national minimum wage rate, even if the employee agrees to it. If it does, employees may be able to raise claims for unlawful deductions from wages and employers risk being included in the government’s naming and shaming regime. The most frequently recognised reason for underpaying employees is the employer’s failure to take into consideration the expense an employee incurs when asked to purchase a work uniform. For example, many hospitality settings require their staff to wear a white top and black jeans to work. This request means any reasonable expenditure in connection with the employment should be reimbursed by the organisation, since an employee’s take home pay is essentially automatically spent on buying their mandatory uniform.

This was seen in the case of Augustine v Data Cars Ltd, whereby the employee raised claims relating to payment of the National Minimum Wage and wrongful dismissal compensation. Augustine was a taxi driver and, as part of his role, had the option of driving his own vehicle or renting one from his employer. Augustine chose to rent a car which required a separate insurance payment, totalling over £2,000. In addition, as a “gold status” driver, he was instructed to wear a specific uniform, which allowed him to undertake a certain level of work. These payments were on top of “standard” fees for valeting, equipment and for a “circuit.” Augustine claimed that these expenses brought his wages below national minimum wage (NMW), so he was due reimbursement.

The Employment Tribunal (ET) found that consideration should have been given to some of the above payments when determining whether or not he had correctly been paid the NMW. This included payments for his insurance and fuel expenses. However, the ET confirmed that the car and uniform payments shouldn’t be included as an exempt deduction and were at the employee’s own expense. It outlined that since these were optional rather than mandatory job requirements, no consideration needs to be given to whether payment for these reduces his NMW entitlement. It noted that Augustine had the option of using his own vehicle, but decided not to, and had chosen to hire a work uniform because he wanted to perform optional extras.

In contrast, the Employment Appeal Tribunal (EAT) concluded that the ET utilised the wrong legal test when assessing the deductions. It stated that the ET should not have considered whether the expenses could have been met in another way (e.g. by Augustine using his own car instead of renting one), but instead should have applied the test of whether the “…expenditure incurred by the claimant was in connection with the employment.” The EAT found that the availability of alternative options was irrelevant to the case as the expenses don’t have to be a job requirement to be included within the relevant rules.

The EAT’s outcome clarifies that any expense incurred in connection with employment should not cause an employee’s pay to fall below the national minimum wage, regardless of whether the expense was a choice or if alternative options were available. However, it must be highlighted that this judgement somewhat contradicts the HMRC National Minimum wage Manual which provides guidance on deductions. HMRC’s guidance separates expenses which are required for work and optional expenses that are chosen by the employee, unlike the test applied by the EAT. This being said, the EAT’s judgement sets legal precedent which employers should follow.

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