Salary deductions which reduce pay below the National Minimum Wage
Employers usually reserve the contractual right to deduct sums from their employees’ wages in circumstances where a deduction from salary is necessary. Examples of necessary deductions include those for employee pension contributions, in relation to salary sacrifice schemes (e.g. cars, childcare etc), in respect of overpayments and for tools and uniforms that are not provided for free.
However, many employers are not aware that a salary deduction in respect of payments due from the employee for expenditure in connection with the employee’s employment, although authorised in the contract of employment, must not reduce the employee’s pay below the National Minimum Wage (NMW) rate (currently £8.91 for employees aged 23 and over). This has been highlighted by the recent Employment Appeal Tribunal (EAT) case of Augustine v Data Cars.
The Claimant was a driver for the Respondent and, after previously using his own car, decided he would rent a vehicle and a uniform from a company associated with the Respondent. The Respondent deducted the cost of the rent and uniform from the Claimant’s salary. The Claimant claimed that this deduction reduced his wages below the NMW. At first instance the Employment Tribunal (ET) sided with the Respondent, finding that both expenses were optional as the Claimant could have continued to use his own car and the uniform was not obligatory.
The Claimant appealed. The EAT (reversing the findings of the ET) held that: whether optional or not, the expenditure was in connection with the Claimant’s employment; and, for such deductions to reduce a worker’s pay for NMW purposes, it does not matter if the expenditure in question is a strict requirement of the employment. Therefore, the facts that the Claimant had his own car and the uniform was not obligatory were found to be irrelevant.
The importance of getting it right when making deductions from pay cannot be understated. Aside from the financial consequences there is also potential reputational damage. The Government now publishes the details of employers who have broken the NMW rules. The most recent report found that 191 employers had underpaid 34,000 workers a total of £2.1 million between 2011 and 2018. As a result of this, HMRC issued fines totalling £3.2 million. It was noted that 47% of the breaches were for incorrect deductions from employees’ wages including for uniform costs and expenses.
If you have any questions regarding salary deductions, please email or call our Employment Law team today on 0113 207 0000.
Partner and Head of Employment
Employment Law
PKelly@LawBlacks.com
0113 227 9249
@PaulLawBlacks
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Paul Kelly
