What can you deduct in terms of National Minimum Wage?

We’ve been analysing queries we receive here at Redwing and have noticed that many of you have questions about what you can deduct when someone is on or near the national minimum wage.

In December 2021, another list from the HMRC where it names and shames the employers who have breached the national minimum wage was published on the internet. A substantial number of those on the list had fell foul of the rules because of deductions.

Here’s some key things you need to do make sure you do:

1. Rates of National Minimum Wage change in April. The April payroll should always be checked and double-checked to make sure that the correct rate of pay has been applied.
2. Apprentices who are on the apprentice rate of National Minimum Wage can only be on this rate if they are over 19 for 1 year. Diarise when they will need to be paid the higher rate so you don’t miss it.
3. Know what a pay period is. A pay reference period for the purposes of the National Minimum Wage is 1 month or where the worker is paid over a shorter period then it is that period i.e. 4 weeks. Time off in Lieu earned should be taken back in the pay period.

An employee can have deductions that do not reduce pay for NMW purposes such as deductions for meals from the kitchen, deductions for the advance of wages, deductions for tax etc.  You can also deduct for something that is in the contract and is misconduct related i.e. not returning uniform when leaves, a deduction to cover damage caused by negligence etc.

However, some deductions from pay will reduce the amount of total pay for national minimum wage purposes. These includes:

1. Deductions in relation to employment such as where equipment has to be purchased.
2. Childcare that you provide will always be a deduction that could take an employee below the national minimum wage which is why we recommend that childcare costs are invoiced normally and are not deductions from pay even when someone leaves.

Recent EAT case law has made it even more dangerous for employers who pay on or near the National Minimum Wage. In that case the employer was found to be liable for deductions the driver had from his wages when he rented a car from a firm associated with his employer for his work as a taxi driver. Strange in its logic but the tribunal found that the deductions from wages for his car and uniform payments were deductions that brought his pay below the minimum wage even though it was his choice to rent.  You can read the full EAT decision here.

This is the National Minimum Wage Manual from the HMRC which you should refer to. It isn’t a pleasant read but I am afraid it is all we have to go by when it comes to NMW. Last year 2021, we did a lunchtime webinar on NMW. We will be running another this Summer.

If you have any questions please do call the team on 01527 909436.