Lees of Scotland are another retailer caught out by the complex National Minimum Wage regulations and their efforts to help employees via a salary deduction savings scheme which they operated for over 30 years.
Well known for their manufacture of teacakes, snowballs and macaroons, Lees operated a savings scheme where its workers voluntarily paid contributions into the fund. These were deducted from their wages, to help them save for holidays. It was a laudable purpose.
However, the company retained the amounts deducted in its main trading account, and paid them upon request to its workers so that they had a convenient lump sum to pay for a holiday.
Through this application of a deduction for some of its workers, their residual wages fell below the national minimum wage.
The HM Revenue and Customs NMW audit served a notice of underpayment on the company requiring it to pay arrears of the national minimum wage to the workers named in the notice.
The company appealed the notice to the ET, which had to decide whether these deductions were for the company’s “own use and benefit” for the purposes of Regulation 12(1) of the National Minimum Wage Regulations 2015. It decided they were not, and rescinded the notice.
ET’s approach may seem to accord with common sense; after all, the fund was to help the workers use their wages to save for their holidays. What, it may be asked, could possibly be objectionable about that?
the deductions were held in the company’s main trading account, they were at its disposal and were for its use and benefit.
On appeal the EAT held that the ET had erred in law in its interpretation of Regulation 12(1) and, contrary to previous case law, in failing to adopt a purposive approach. The EAT reached the opposite conclusion: because the deductions were held in the company’s main trading account, they were at its disposal and were for its use and benefit.
The EAT also overturned the ET’s judgment that, when the company paid the savings to the workers, those payments constituted “additional remuneration” for the purposes of section 17 of the National Minimum Wage Act 1998, which went towards extinguishing or reducing its liability to pay them arrears of wages. Consequently, the EAT restored the notice of underpayment.
Opinion
National Minimum Wage law is complex and a little convoluted. Common sense plays a limited part and employers need to consider their actions very carefully. In this case the employers intentions were to aid and help their employees, however, by holding onto the funds within their own business accounts had fallen foul of aligning with NMW requirements and have breached minimum pay law.
Employers need to take significant care and obtain professional competent advice in the operation of minimum pay.
Following the recent Kings Speech, we may see that age differentials are soon to be removed as we move to a new genuine living wage. Increasingly employers schemes which are attempting to assist employees may be seen as crossing the line with higher. Umber of workers paid at or close to the latest legal minimums.
Watch out and prepare. Minimum Wage is not about the pay rate that is perceived to have been paid, but the rate received for all work time whether paid or not and after any relevant reductions to NMW pay.
Can PAYadvice help?
PAYadvice Ltd has access to NMW experts who can assist companies with friendly review and audit of their pay policies and how they align with NMW requirements.
We can also support employers who are going through the not so friendly HMRC NMW investigation and audit process.
If you need help please do contact us to see how we can assist.
PAYadvice.UK 25/7/2024