In the shaming list of 202 employers who had failed to pay minimum wage to their employees and workers, 79 (39%) breached Minimum pay requirements due to deductions from wages.
HMRC published as part of the former round 16 shaming list the main reasons why failures are occurring due to these deductions and payments.
Deductions is one of the largest areas on minimum pay confusion with many employers not understanding what they can and can’t do with their workforce which impacts their compliance with minimum pay.
Many are caught and shocked to find out their dress code requirements, uniforms, compulsory safety clothing have resulted in the employer breaching minimum pay law.
What deductions or payments take pay below the minimum wage?
HMRC minimum pay audits has identified the following deductions or payments have been used by employers without them realising that they impact minimum pay:
Deductions may include:
- Food / meals
- Parking permits and/or travel costs
- Cost of, or lost, work equipment
and / or Personal Protective
Equipment - Stock or till shortage
- Training costs
- Christmas savings schemes (when
administered incorrectly) - Uniform
- Childcare costs
- Salary sacrifice schemes e.g. cycle
to work, pension and employer
benefit schemes - Worker purchase of clothes to meet dress code
So let’s look at more of the detail.
What do HMRC minimum pay audits find?
HMRC find that deductions and payments from the worker to the employer that take pay below the minimum wage are the most common reason for underpayment.
Common risks of non-compliance include:
- A worker voluntarily purchasing goods or services from the employer, if the employer allows the worker to purchase them via deductions from pay;
- A worker incurring costs from expenditure connected with the job – for example PPE, uniform, meals, training or travel costs.
The following information provides a brief outline of the common risks.
What counts as pay for minimum wage purposes?
Minimum wage is calculated by determining the worker’s total remuneration in a pay reference period and checking that the average hourly rate of pay for that period is at least the relevant minimum wage rate.
For further information on what counts as pay for minimum wage purposes and on the steps to ensure compliance:
Deductions from pay that reduce pay for minimum wage purposes
According to the HMRC National Minimum Wage investigation team, certain deductions from a worker’s pay, or payments made by the worker to the employer, reduce pay for minimum wage purposes.
A deduction, or payment from a worker to an employer (or to a third party), becomes a minimum wage issue when it risks reducing the worker’s pay below their minimum legal entitlement.
This requires consideration of:
- Deductions an employer makes from a worker’s pay;
- Deductions from a worker’s pay which are paid by the employer to a third party;
- Payments a worker makes to their employer; and
- Payments a worker makes to a third party (whether or not it is reimbursed).
A payment will not reduce pay for minimum wage purposes if (i) a worker chooses to buy goods or services from their employer which are not required in connection with their employment, and (ii) the worker pays for the goods or services via a payment to the employer.
However, if the same purchase is paid for via a deduction from wages then this will reduce pay for minimum wage purposes, even if the worker freely chooses to make the purchase and/or signs their agreement to the purchase.
Payments and deductions are often made in connection with those set out below (note that the list is not exhaustive).
- Uniforms
- Meals
- Transport
- Personal Protective Equipment (PPE)
- Saving Schemes
- Salary sacrifice arrangements
For further information see:
Deductions that will not reduce a worker’s pay for minimum wage purposes
Not all deductions reduce minimum wage pay.
Deductions from pay that are not for expenditure connected to the worker’s employment or for [the employers] own use and benefit
The following do not reduce pay for minimum wage purposes:
- Living accommodation– providing the amount deducted is not more than the accommodation offset. For more information see National Minimum Wage and Living Wage: accommodation.
- Deductions to account for an accidental overpayment of wages.
- Payments to a third party a worker asks an employer to deduct from their pay, for example a trade union subscription.
- Other deductions relating to tax and National Insurance contributions as these are not for the employer’s own use and benefit.
For further information see:
Does salary sacrifice flipping work?
Salary sacrifice arrangements always reduce pay for minimum wage purposes, even when special allowances are provided to cover as those allowances may not form part of minimum pay wages.
Some employers historically have monitored employees for their minimum pay compliance and where a breach was possible with pay being reduced by the sacrifice, they stopped the sacrifice and alternatively made a deduction from the employees wages instead.
This is problematical as the deduction is likely to be a payment to the employer for the employers benefit.
So does salary sacrifice flipping work? Probably not!
Record-keeping
Employers’ records must be sufficient to show that they are paying each worker at least the minimum wage for every pay reference period worked.
Employers must be clear on what elements count as pay for Minimum Wage purposes and they must ensure that any deductions made do not take the worker’s pay below the minimum wage rate.
What to do if you have been underpaid the minimum wage
If anyone thinks they have been underpaid, they should complain to HMRC using the online form or call the Acas helpline.
Complaints can be made anonymously and HMRC won’t reveal a worker’s identity to the employer. HMRC consider every worker complaint they receive. This usually involves contacting the complaint worker to get further details. HMRC won’t share your details with your employer if you don’t want them to.
Throughout the year, workers can access the Check Your Pay website for clear advice about what their pay should be and how to report breaches. Workers can call the Acas helpline (0300 123 1100) for free, impartial and confidential advice about their rights and entitlements. Acas also offers a translation service. Acas officers will pass on cases to HMRC for further consideration where appropriate.
How can we find out more?
There are a number of places that detailed information can be found, often it is also good to speak to experts.
PAYadvice.UK Simon Parsons will be presenting on National Minimum Wage on 14th July 2023 (and other dates) at the SD Worx Academy: National Minimum Wage – Advanced | SD Worx Academy
Can PAYadvice help?
If an employer has concerns on whether they have challenges with understanding National Minimum Wage law, or want a more affordable and friendly discussion or audit, please feel free to make contact with PAYadvice:
PAYadvice.UK 24/6/2023