The Employment Appeal Tribunal rules on the expenses and deductions that bring wages below the National Minimum Wage

In April 2020 the government relaunched its scheme of publishing the names of businesses who fail to pay their workers the National Minimum Wage (NMW), including where the error by the employer is inadvertent.  When calculating how much a worker is paid per hour (and therefore whether it is above or below the NMW) it is necessary to divide the total remuneration in the relevant pay reference period by the total number of hours worked or deemed to have been worked.

In this regard, the National Minimum Wage Regulations can be complex to interpret, as when working out what the total renumeration for the purposes of calculating whether it meets the NMW rate, there are certain payments which should be deducted under the Regulations. These include certain deductions made from the employee’s salary by the employer (such as under salary sacrifice schemes or deductions for food or meals), or payments made by the employee for expenses they incur themselves in connection with their employment (such as paying for work uniforms or work-related training). These payments made by the employee or deductions made by the employer can reduce the employee’s wage below the NMW rate, resulting in potential enforcement action for non-compliance with NMW legislation by HMRC, or even by the employment tribunals. 

In December 2021, the government “named and shamed” 208 businesses for failing to pay their employees the NMW. Notably, 37% of those employers were named for making unlawful deductions from workers’ pay that reduced NMW pay, for example in relation to the costs of work uniform.  The government has stated that whilst not all minimum wage underpayments are intentional, there is “no excuse” for underpaying workers. The government has published guidance on calculating the NMW.

One such recent Employment Appeal Tribunal case has clarified what expenses and deductions are deemed to be ‘in connection with employment’ and so reduce pay for NMW purposes.  In that case the claimant was employed as a taxi driver with Data Cars Ltd. He was required to provide a vehicle, either by using his own vehicle or renting a vehicle. He initially provided his own leased vehicle but subsequently started renting a vehicle from a company associated with Data Cars Ltd. He also rented a uniform from Data Cars Ltd, so that he could work as a designated "gold driver" and undertake certain jobs. He was not obliged to rent the uniform but needed it if he wanted to do gold level work, which was entirely optional. Following the end of his employment, he brought numerous employment tribunal claims, including that he had not been paid the NMW.

An employment tribunal found that certain payments, including fuel and insurance payments, fell to be deducted from his salary for NMW purposes. However, it concluded that deductions were not allowable for the car and uniform rental payments because he had the option of using his own vehicle, and rental of the uniform was optional as he did not have to undertake gold level work. The claimant appealed.

The Employment Appeal Tribunal’s Decision

The Employment Appeal Tribunal (“EAT”) upheld the appeal and ruled that the employment tribunal were incorrect in failing to treat payments made by the claimant to rent his vehicle and for purchasing his uniform as reductions, when calculating what he had been paid, for the purposes of his NMW claim. 

The EAT noted that in order to be deductible under the National Minimum Wage Regulations 2015, the relevant payments had to be "in connection with the employment" and not reimbursed by the employer. The EAT further noted that the payments did not have to be an actual requirement of the employment.  The correct test for the NMW calculation was whether the expenditure was in connection with the employment. The fact that the claimant could have met his obligations under his employment contract by using his own vehicle, if he had one, was not relevant to the application of the test. In addition, he plainly wore his uniform in connection with his employment; that was why he rented it. 

The EAT found that the employment tribunal had not applied the correct test. If it had done so on the facts found, it could only have concluded both types of payment were incurred in connection with his employment and were deductible when calculating whether he had received the NMW.