NMW Case - Deduction for employer’s own use and benefit

A recently published Employment Appeal Tribunal decision demonstrates that even with the best intent, an employer can fall foul of the National Minimum Wage (“NMW”) Regulations 2015. 

In the case of HMRC v Lees of Scotland Limited, the employer operated a holiday saving scheme for its employees.  Participation was voluntary and the amounts saved were deposited in the company’s trading account but always available to and refunded to the employees on request.  HMRC found that the deductions were for the employer’s own use and benefit and so, caused a reduction in NMW pay and so, where an employee’s pay was at or close to NMW rate, potentially caused a breach of NMW.  The alleged breach led to an underpayment of £81,000!

The company appealed to the employment tribunal and won.  HMRC appealed that decision and it is the decision of the Employment Appeal Tribunal (“EAT”) which has now been published.  The EAT decision details that where the amounts deducted remain in an account that the employer has access to, they can be held to be available to the employer and so, are regarded as being ‘for the employer’s own use and benefit’.  The intent of the deducted amounts, the voluntary nature of the arrangement, the fact that they were subsequently refunded to the employees nor the fact that the employer did not materially benefit from the arrangement made any difference.  The deductions were held to be for the use and benefit of the employer because, if they wanted to, in breach of the agreement they had with the employees participating in the scheme, they could spend the savings amounts. 

Aspire Comment

This case is a good example of the complexity and, at times, illogical nature of the NMW Regulations.  In spite of the employer operating the savings scheme at its own cost for the benefit only of its employees, it was forced to pay arrears of NMW pay in addition to refunding the amounts saved. 

Extreme care must be taken in any circumstances where you make non-statutory deductions from your employees pay where such deductions cause pay to fall below the NMW.

If you would like to discuss you arrangements do get in touch on 0121 445 6178 or enquire@aspirepartnership.co.uk.