353: Which payments can be deducted for national minimum wage purposes?

Allowable deductions are treated as reductions to wages if they are not repaid by the employer. Employers should seek advice to ensure they are paying their employees the correct amount.

When assessing hourly pay to check compliance with the National Minimum Wage (NMW), employers must calculate total remuneration less allowable deductions. The general rule is that deductions and payments must be treated as reductions to wages where they are made in connection with employment, and not reimbursed by the employer. However, deciding which payments can be deducted is not always straightforward. In Augustine v Data Cars Ltd, the EAT has confirmed that the question is whether the relevant expenditure was incurred in connection with the employment, not whether it was a requirement of the employment.

In this case, the employee claimed he had been paid below the NMW because his employer had not deducted various payments he was obliged to make in order to carry out his job.

Mr Augustine was employed by Data Cars Ltd as a taxi driver. He was required to make a number of payments necessary for his work, including taxi licence payments, insurance premiums, valeting costs and fuel. It was his choice whether he used his own vehicle or rented one from a company associated with his employer. He could also choose to purchase a branded uniform from Data Cars in order to be able to undertake extra jobs as a ‘gold driver’. After his employment ended, Mr Augustine brought a number of claims, including a claim that he had been underpaid the NMW because the payments he was required to make for his work had not been treated as deductions.

The Employment Tribunal held that some of the payments, including fuel and insurance, were clearly deductions for the purposes of calculating NMW because they were necessary for Mr Augustine to carry out his work as a taxi driver. However, in the Tribunal’s view, because Mr Augustine had chosen to rent a car and purchase a uniform, rather than being required to as a condition of his work, these payments were not deductible. Mr Augustine appealed to the EAT.

Overturning the decision of the Employment Tribunal, the EAT has now allowed Mr Augustine’s appeal in relation to his vehicle rental and uniform costs. The Tribunal had applied the wrong test. The main question was whether the relevant expenditure was incurred in connection with Mr Augustine’s employment, not whether it was a requirement of the employment. It was therefore irrelevant that Mr Augustine had chosen to purchase a uniform and to rent his taxi rather than use his own vehicle. Since both payments had clearly been incurred in connection with his employment, they should have been deducted when calculating whether he had received the NMW.

This case is a useful reminder of the types of payments which will count as deductions. It is vital to seek specialist advice to ensure that NMW calculations are accurate, not just to minimise the risks of costly Tribunal claims but also to avoid additional fines and potential damage to reputation through the Government’s NMW naming and shaming scheme.