National Minimum Wage and deductions

In Augustine v Data Cars Ltd the EAT held that the test for whether an expense should be treated as a reduction for the purposes of national minimum wage (NMW) calculations is whether the expense was incurred ‘in connection with’ employment. 

Deductions by an employer will usually reduce the amount of the worker's total pay for the purposes of the NMW, unless the deduction is for:

• tax or national insurance; 

• something a worker has done, which their contract says they’re liable for (for example, damage to a vehicle through reckless driving); 

• repayment of a loan; 

• an employer’s mistaken overpayment; or

• accommodation provided by the employer at or below the allowable limit. 

HMRC regard any deductions ‘in connection with’ an obligation imposed by the employer as unlawfully reducing pay for NMW purposes. The worker must still be left with at least the NMW after the deduction has been taken into account. This would include, for example, deductions for uniform, employer-provided tools or equipment, and the cost of mandatory training.

If it finds that employers have paid less than NMW then, as well as requiring repayment of arrears, HMRC can now impose a penalty of up to 200% of any underpayments, as well as publicly ‘naming and shaming’ the employer. 

Non-compliance can have a significant financial and reputational cost, in addition to taking up management time.