What payments are deductible for NMW purposes?

The Employment Appeal Tribunal (“EAT”) in the case of Mr W Augustine v Data Cars Ltd has considered what expenses are deductible from an employee’s salary in assessing whether he is being paid at least the National Minimum Wage (NMW).

Background

The Claimant worked as a taxi driver for Data Cars Ltd (“the Respondent”). As part of this role, the Claimant was required to have a car, either his own vehicle or a rental vehicle to carry out his duties. The Claimant rented a vehicle from a business associated with the Respondent. The Claimant also purchased a uniform from the Respondent so that he could carry out “gold level” work. This was not a strict requirement of the job, it was optional, but the uniform was required if the Claimant wanted to carry out a “gold” level of work and operate as what was known as a “gold driver.”

The Claimant brought a number of claims to the Employment Tribunal, including that he had been underpaid the National Minimum Wage as the Respondent had failed to take into account additional payments made by the Claimant to rent his vehicle and pay for his uniform.

The Law

The National Minimum Wage Regulations 2015 (“the Regulations”) detail the rules regarding the operation of the NMW and ensuring that workers are paid the NMW. Regulation 12 and 13 of the Regulations are the most applicable in this case.

Regulation 12 details deductions or payments made for the employer’s own use and benefit and regulation 12(2) provides examples of deductions and payments made that are not to be treated as reductions.

Regulation 13 provides for deductions or payments in respect to a worker’s expenditure. It states:

“The following deductions and payments are to be treated as reductions if the deduction or payment is paid by or due from the worker in the pay reference period –

(a)        deductions made by the employer, or payments paid by or due from the worker to the employer, as respects the worker’s expenditure in connection with the employment;

(b)        payments to any person (other than the employer) on account of the worker’s expenditure in connection with the employment unless the expenditure is met, or intended to be met, by a payment to the worker by the employer.”

Decision

For the purposes of the Claimant’s claim for the underpayment of NMW, the Employment Tribunal held that the rental payments for the vehicle and the uniform costs fell outside regulations 12 and 13 and were not considered costs that should be deducted from his total earnings.

The Claimant appealed this decision. On appeal, the EAT held that the Tribunal had erred in its decision by concluding that the vehicle rental costs and uniform costs were not deductible costs in assessing whether the Claimant was being paid the NMW or not. The EAT held that the vehicle rental costs and the uniform costs were clearly expenses “in connection with” his employment for the purposes of regulation 13 under the Regulations and that it was irrelevant whether those expenses were a necessity (which was the test applied by the Tribunal). Therefore, these payments should be deducted when calculating the Claimant’s remuneration for assessing compliance with NMW.

Comment

Calculating whether your employees are being paid the NMW can be difficult if there are a number of deductions or reductions for you to consider. However, to ensure compliance with the law it is important that you review this regularly and ensure that any expenditure incurred “in connection with the employment” is viewed as a deductible expense for the purposes of calculating NMW. The Department for Business, Energy & Industrial Strategy (BEIS) has guidance for employers on how to calculate the NMW, this can be found here.

Case reference: Mr W Augustine v Data Cars Ltd EA-2020-000383-AT