Deductions from The National Minimum Wage

My employer has made deductions from my pay and now I haven't been paid the national minimum wage - is this allowed?

Most workers who work in the UK are entitled to be paid the minimum wage. Determining whether or not a worker is paid the minimum wage means working out an hourly rate of pay by dividing payments received by hours worked in a pay reference period, which in turn is calculated by reference to how often a worker is paid.

These calculations can be complex.

They becomes more complicated when one takes account of the fact that some deductions from wages are taken into account when calculating hourly pay, because they will reduce the actual amount earned, and could mean that a worker's hourly pay falls below the minimum wage allowed.

These complexities came to light in a recent case determined by the Employment Appeal Tribunal. The case now provides useful guidance for employers and workers as to what amounts to a deduction for the purposes of the minimum wage.

The case involved a claimant employed as a driver by a taxi firm. He claimed that he had been paid less than the minimum wage, once expenses deducted by the employer had been taken into account.

The employee paid for equipment to be fitted to his car and for access to a booking app. He was required to have insurance. In the beginning he used his own vehicle, but later rented a vehicle from the taxi firm. He incurred fuel and cleaning costs and bought a company uniform.

The case first went to the Employment Tribunal which determined that fees paid for equipment, the app, insurance, cleaning and fuel costs should be deductions. However, the Tribunal held that the cost of car hire and for the uniform were optional expenses because the worker could use his own car and did not have to buy a uniform. As such, these costs did not have to be taken into account when calculating the minimum wage.

The judgement was appealed. The Employment Appeal Tribunal decided that the cost of car hire and the uniform were in fact deductions. The test is whether the expenditure is "in connection with employment" and is not reimbursed by the employer. As such, the deduction does not have to be a requirement of employment, merely in connection with it. It does not even have to be incurred necessarily for or exclusively for the employment. As such, despite not being required to hire a vehicle or purchase a uniform, he had done both in connection with his employment. So, if the effect of those deductions meant that the employee was not in fact paid the minimum wage, the employer will be in breach of the law requiring the minimum wage to be paid.

The case highlights the importance for employers to get it right when determining what deductions should be taken into account, so as to avoid failing to pay the minimum wage.

Failure to pay the minimum wage can have serious consequences for the employer. The worker can enforce their entitlement by way of a breach of contract or unlawful deductions from wages claim. HMRC can take action including issuing a notice of underpayment. The employer may even be guilty of a criminal offence.

This is not legal advice; it is intended to provide information of general interest about current legal issues.