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When can payments be deducted for the purposes of the National Minimum Wage?


A lot of employers find themselves in breach of the National Minimum Wage regulations. Although for many, the breach is deliberate and often egregious, for many others, it is inadvertent as they find, to their dismay, that they have been caught by an aspect of the admittedly intricate and over-complicated regulations around NMW calculation.

One aspect that causes a lot of confusion is that of the deductions to workers’ wages that either count or don’t count when considering whether the final wage is lower than the NMW. Certain deductions will reduce the worker’s hourly pay for NMW purposes; others, however, will not. The regulations require that, once all deductions and payments have been made, depending on the circumstances, the hourly rate must match or exceed the NMW.

Now, a case at the Employment Appeal Tribunal has somewhat clarified the rules around the NMW and deductions, although it has interesting implications for employers.


What happened?

The case was that of Augustine v Data Cars Ltd. Mr Augustine started work with Data Cars as a driver. To carry out his job, he could choose to use his own car or hire one from a company closely associated with Data Cars. To begin with, he used his own car but after a short time, he decided to start renting one. Additionally, in order to do a certain level of work, which was described by Data Cars as “gold driver” status, he needed a uniform, which he purchased from the company. He said at the tribunal that he had no other use for this and that it was not compulsory unless he wanted to do “gold driver” work.


After a few months, Mr Augustine’s employment with Data Cars ended. He then brought several tribunal claims, one of which said that he had not been paid the National Minimum Wage, by reason of the car hire and uniform expenditure not being deducted from his wages for NMW calculation purposes.


The Employment Tribunal disagreed, saying that as the car hire and uniform were not compulsory payments – Mr Augustine had chosen to pay for them – they did not count as deductions and therefore he had been paid the NMW. In their words, “…rental payments for the vehicle and uniform costs fall outside regulation 12 and regulation 13 [of the National Minimum Wage Regulations 2015]”


The Employment Appeal Tribunal decision

Augustine took his claim to the Employment Appeal Tribunal (EAT). He argued that the relevant test for deductibility was whether the payment was in connection with the job, as per Regulation 13 of the National Minimum Wage Regulations 2015.

13. The following deductions and payments are to be treated as reductions if the deduction or payment is paid by or due from the worker in the pay reference period—

(a) deductions made by the employer, or payments paid by or due from the worker to the employer, as respects the worker’s expenditure in connection with the employment;

(b) payments to any person (other than the employer) on account of the worker’s expenditure in connection with the employment unless the expenditure is met, or intended to be met, by a payment paid to the worker by the employer.


The EAT agreed with him and said that the Employment Tribunal had applied the wrong legal test when they said that the uniform and car hire were optional and therefore not deductible for NMW purposes. The EAT ruled that the statutory test is whether the expenses are incurred in connection with work and have not been reimbursed by the employer.

The EAT said that the payment “did not, in fact, have to be a requirement of the employment. It neither had to be necessarily incurred, nor wholly or exclusively incurred. The test that Parliament has determined appropriate in the context of a national minimum wage calculation is whether the expenditure is in connection with the employment. The tribunal did not apply that test, but decided the matter on a different and irrelevant basis; and it erred in doing so. It appears to us that, had the tribunal applied the correct test on the facts found, it could only have concluded that this expenditure was incurred in connection with the employment”

Since Mr Augustine hired the car and bought the uniform in connection with his job, even though neither was a direct requirement, they were deductible for NMW purposes.


The burden of proof

Additionally, the EAT raised a salient point and one which employers might not be aware of; they said:

“…the reversal of the burden of proof required by section 28 of the National Minimum Wage Act 1998 under which, where an employee asserts that he was paid less than the NMW, it will be presumed that he is correct unless the contrary can be established.

The onus therefore falls upon the [employer] to satisfy the tribunal that they have met their legal obligations to pay the right amount.”


Employers therefore should not arrive at the tribunal believing that if the claimant can’t prove they were paid less than the NMW, the employer will necessarily win by default. They will need detailed documentation and figures in order to prove their case; failure to prepare or provide this will cost them.


Implications for employers

It's clear from what both the ET and EAT said that the NMW regulations are something of a maze and not one into which the untrained employer should venture alone.

It’s also worth noting that the EAT decision seems to contradict what HMRC say in their National Minimum Wage Manual. Both of them say that expenses that can be proved to be in connection with employment should be deducted when calculating the NMW, but the Manual develops this point a little further by differentiating between those expenses which are a genuine requirement of the job and those which the worker incurs by free choice. The manual says that the latter, provided it’s a payment from the worker to the employer, should not be deducted for NMW purposes.


The HMRC National Minimum Wage Manual is issued as guidance, not legislation, so when looking at this issue, employers should definitely consult their legal advisor to confirm which of the two – the EAT judgment or the Manual – should be followed. It is likely to be the judgment, but it’s best to be certain and take expert legal advice.