News & Insights

Does a deduction count?

Our employment team reports on a recent case regarding deductions to wages.

When calculating whether an employer has met the national minimum wage (NMW) requirements, there are certain deductions from pay that must first be taken into account.  In a recent judgement an Employment Appeal Tribunal (EAT) clarified that the test to determine whether an expenditure has to be deducted is whether it is incurred in connection with the employment; the expenditure does not need to be a requirement of the employment.

NMW is the minimum hourly rate that an employer is required to pay a worker. The current NMW for a worker aged 23 and over is £8.91 per hour. As mentioned above, there are certain deductions that an employer needs to take into account when calculating the NMW which include but are not limited to:

  • the worker’s expenditure in relation to the employment, such as tools, equipment or cleaning and purchase of uniforms, whether these are paid by the worker directly or paid to the employer by the worker (this does not apply if the employer reimburses the worker for the expenditures incurred);
  • deductions (or payments by the worker to the employer) for the employer’s use or benefit (such as meals or a discount for goods purchased from the employer);
  • any payment or deduction in relation to the provision of living accommodation to the extent that it exceeds the accommodation allowance.

In the recent EAT case Mr Augustine, a driver who worked for Data Cars claimed he had not been paid the NMW.  He claimed his employer had failed to take into account payments he made in relation to the vehicle and uniform he rented.  It was Mr Augustine’s choice to rent a vehicle from his employer, rather than using his own. He also opted to rent a uniform which allowed him to take on higher level jobs. Data Cars made a mistake by not treating the rental of the vehicle or uniform as expenditures when calculating NMW. The fact that Mr Augustine could have used his own car and did not need to wear the uniform was not relevant.

This case clarified that the expenditure incurred does not have to be a requirement of the employment, neither does it have to be necessarily incurred in order to carry out the employment. It is sufficient that the expenditure is incurred in connection with the employment.

In this scenario there is a reversed burden of proof, meaning that where an employee claims that they were paid less than the NMW it will be presumed that they are correct unless the contrary can be established.

Not every deduction or every payment needs to be taken into account when calculating the NMW. Deductions made due to certain contractual liabilities or conduct of the worker as well as deductions due to a loan made to the worker or an accidental overpayment as well as deductions for tax and National Insurance contributions are some of the deductions that do not have to be taken into account.  This can be quite complex, getting it wrong could result in claims and also damage to your reputation as the Government can “name and shame” companies that do not comply with the NMW.  If you need any advice regarding whether a particular expenditure or payment should be deducted when calculating whether you have met the NMW requirements please let us know.