NMW – beware of falling foul of the complex calculations

The rules governing the calculation of whether your workers are being paid the National Minimum Wage (NMW) can be complex. Many of you will be aware that certain deductions from a worker’s wages must be taken into account when assessing whether they are being paid the NMW. For example, where a worker is required to wear a top with the company’s logo, this purchase (regardless of whether the worker is purchasing the uniform or a payment is being deducted from the worker’s pay) will reduce the worker’s average hourly wage for NMW calculation purposes because it is a specific requirement imposed by the company. However, if the employee simply chooses to wear a branded top when it is not a requirement, a payment for this item will not reduce pay for NMW calculation purposes.

In recent years, HMRC has been quick to pursue a company when it believes there has been a breach of the rules governing the NMW. It recently pursued Middlesbrough Football Club in the Employment Tribunal because it agreed to a request from a few low paid employees to spread the cost of football season tickets and for the cost to be deducted from their wages. However, the Employment Judge found that Middlesbrough FC’s policy did not breach NMW rules. HMRC argued that this was a breach of rules because the deductions caused the employees’ wages to fall below the National Minimum Wage rate. It said that the amounts deducted from the wages were for Middlesbrough FC’s use and benefit. The Employment Tribunal Judge took (what we would describe as) a ‘common sense approach’ to the issue.

The Judge said that the season ticket amounts were not a benefit in kind which the National Minimum Wage legislation was designed to prevent as they were purchased for family members. The arrangement which Middlesbrough FC had in place benefited employees and withdrawing the benefit would leave employees worse off. The Judge said this is not what the National Minimum Wage legislation was designed to achieve. This is a useful case because traditionally HMRC have not considered whether the deduction actually benefits employees. A good example of this is where an employer lays on subsidised transport for employees to save them having to pay for expensive public transport (or to get around its non-existence). HMRC has taken the view that if deductions are made for this, it reduces pay for NMW calculation purposes regardless of the benefit it provides.

Whilst this case is a step in the right direction, it is a reminder of the hard-line HMRC takes on NMW issues. Take care with deductions from your workers’ pay cheques.

Louis Howlett, Solicitor