Car and uniform payments deductible when calculating national minimum wage

The national minimum wage is the prescribed minimum hourly rate of pay that employers are required to pay to most workers. Ensuring the minimum wage is paid correctly can be tricky and errors can lead to damaging and costly consequences for employers.

Calculating the correct minimum wage is not just about adding up the pennies. It is necessary to consider any deductions made to a worker’s wages, including any payments the worker is required to make in order to properly carry out their job.

In this article, we take a look at the recent Employment Appeal Tribunal (EAT) decision in Augustine v Data Cars Ltd. It provides useful guidance for employers when identifying the types of payments which will count as deductions of wages for the purposes of calculating the national minimum wage.

What happened in the case?

In a separate tribunal hearing, Mr Augustine was a taxi driver who was found to be a worker and employee of Data Cars. He was required to make a number of payments as part of his work, which included payments for his taxi licence, insurance premiums, fuel and rental of certain equipment. He was also required to keep his vehicle clean and he paid regularly for a valet service.

He had the option to use his own vehicle or rent a car from an associated company of the employer at further expense. Additionally, if Mr Augustine wanted to take more valuable paying jobs he was required to purchase a branded uniform from his employer.

Mr Augustine brought a claim to the employment tribunal against Data Cars and claimed that he had been underpaid the national minimum wage, as well as claims for holiday pay and for wrongful dismissal. In respect of underpayments of the national minimum wage, he believed that all of the payments that he was required to make in relation to his work were classed as a reduction in his pay and therefore his pay fell below the statutory minimum.

The first instance tribunal found that some of the above payments (namely fuel and insurance) were clearly deductions for the purposes of calculating the national minimum wage as payments that had to be made in order for Mr Augustine to carry out his job. In other words, he had no choice but to make certain payments as he would not have been able to operate as a taxi driver if he did not have fuel in his car or the correct insurance in place. These payments should have been accounted for within his wages.

The tribunal took consideration of the HMRC guidance manual on the national minimum wage and found that Mr Augustine was not obliged to rent a car or purchase a uniform and those particular payments would not count as deductions. Mr Augustine appealed this point, amongst other points, to the Employment Appeal Tribunal.

The EAT considered in depth, regulation 13(1)(b) of the National Minimum Wage Regulations 2015 that states deductions and payments are to be treated as reductions to the worker’s wage where they are payments made “in connection with the employment” (and not reimbursed by the employer). This is broader than the tribunal’s application of the HMRC guidance which they used to consider whether the expenses were a “requirement of the work” or a choice.

In consideration of the above, the EAT overturned the tribunal’s judgement and held that in order for it to be deductible from the worker’s wage, the relevant payment must only be in connection with the employment. It was irrelevant whether the employee could have used his own vehicle or that he chose to rent one. The fact that he did rent a vehicle in connection with his employment was all that was needed to satisfy that requirement. Similarly, the tribunal had applied the wrong test in respect of the uniform as it was plainly worn in connection with his employment and wouldn’t, for example, have been for the purpose of wearing in his own time. The EAT substituted its findings in respect of both payments as deductible for the purposes of calculating the national minimum wage.

Is the HMRC guidance still relevant?

As pointed out by the EAT, the HMRC guidance note referred to by the first instance tribunal is not binding on the courts, although it may still act as a starting point for employers.

The HMRC national minimum wage manual distinguishes between compulsory and optional uniforms. Where a worker is required to purchase specific items to wear to work, then payments for those uniforms should be deducted when calculating national minimum wage. Where a worker freely chooses to pay for additional items of uniform, then those payments will not reduce the overall national minimum wage received. For example, if an employee had to purchase a branded t-shirt for work, that expense would be deducted from the worker’s wage. If, however, the worker chose to purchase an additional t-shirt over and above what is required of them, that cost would not be deducted.

Whilst this approach from the HMRC manual might provide a basic tool for employers, it should not be considered in isolation. As we have now seen in Augustine v Data Cars Ltd, whether uniform is “optional” is not the only consideration. If that uniform is voluntarily purchased for the sole purpose of work, it may still trigger a reduction in the worker’s overall remuneration which could bring it below the national minimum wage.

A cautionary tale

When calculating a worker’s total remuneration, the employer should take into account any deductions or payments required to be made by a worker in connection with their employment. Employers will need to ensure that a worker is left with at least the national minimum wage entitlement after accounting for any such reductions.

Getting the national minimum wage wrong could lead to an employment tribunal claim for unlawful deduction of wages or potentially a civil court claim for breach of contract. As well as the associated legal fees, claims could result in awards of repayment of up to two years’ worth of deductions and compensation for the successful claimant.

Employers also risk suffering reputational damage as the government has relaunched its scheme to name and shame businesses who fail to pay the national minimum wage.

National minimum wage legislation is not straightforward and can be difficult to follow. If employers are unsure, they should seek specialist advice to avoid being caught out. If you feel that your organisation would benefit from a national minimum wage audit to assess your compliance, please do get in touch.