Certain deductions made by employers from workers’ pay, or payments made by a worker to a third party, can reduce pay for National Minimum Wage (NMW) purposes, meaning that as an employer, you could be inadvertently failing to pay the required rates.

Many employers make mistakes in the following ways:

1.  Tips and gratuities

Tips, gratuities and service charges do not count towards NMW pay. Those employing waitresses and bar staff should not rely on tips topping up a worker’s pay to NMW levels.

2.  Uniforms

If an employer requires workers to buy specific items for work, such as a uniform or PPE, any deductions made from pay, payments made to the employer by the worker or payments made by a worker to a third party in respect of those items will reduce pay for NMW purposes. “Uniform” can be construed broadly and HMRC gives the example of hairdressers being required to wear a white top and black trousers – this would be considered uniform and would reduce NMW pay even if the employee purchases these items from the high street. Employers could consider giving workers an allowance for purchasing uniforms on top of NMW pay.

3.  Tools

If workers are required to purchase tools or other equipment, whether from the employer or a third party as a requirement of their employment, any deduction made by the employer for this purpose will reduce NMW pay. Employers may wish to consider giving workers an allowance for the purchase of such items when they join the business.

4.  Meals

If an employer makes a deduction from pay for meals voluntarily taken by a worker, such as from a canteen, this will reduce NMW pay even if the worker has chosen to receive the meals and has consented to the deduction. Employers should consider having workers pay in cash or by card for meals.

5.  Vouchers

Vouchers given to workers do not count towards pay for the purposes of the NMW. This means that any vouchers given for lunches etc. should not be included in your calculations.

6.  Salary sacrifice schemes

A valid salary sacrifice scheme means that a worker gives up their contractual right to a portion of their salary in exchange for a benefit, such as childcare vouchers or a dental scheme. The amount of the salary sacrifice should therefore not be counted for NMW purposes.

7.  Voluntary purchase of goods from the employer

If a worker chooses to purchase something from their employer, the method of payment will determine whether there could be an effect on receipt of the NMW. If a worker simply pays the employer for the item, the payment will not reduce pay for the purposes of the NMW. If, however, the employer makes a deduction from the worker’s wages for the amount of the item, this deduction will reduce NMW pay even if the worker has consented to the deduction. Employers should therefore ensure that all items purchased by workers are paid for in cash or by card to avoid this problem.

The penalties for failing to pay the NMW can be significant – the NMW can be enforced by HMRC or by workers claiming unlawful deductions from wages in the Employment Tribunal. If HMRC concludes that the correct rates have not been paid, in addition to paying the arrears to the worker, they can also require employers to pay penalties of up to 200% of the arrears up to a maximum of £20,000 per worker. It is also a criminal offence to wilfully neglect to pay the NMW or fail to keep records, punishable by a potentially unlimited fine.

If you have any queries about the National Minimum Wage, please get in touch today to find out how we can support you.


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Author: Lucy Gordon

Senior Solicitor, ESP Law Ltd

Lucy is an employment solicitor who brings to ESP over a decade’s experience at DLA Piper, one of the world’s most prestigious law firms. At DLA Piper, Lucy was involved in a number of global projects for major international customers and handled a varied case-load of employment matters for a range of UK clients, including complex Employment Tribunal cases involving whistleblowing and TUPE.

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