The Chancellor, Rishi Sunak, announced in the recent Budget new rates for National Minimum Wage (“NMW”) to take effect in April of next year. These changes will see the National Living Wage increase from £8.91 to £9.50 per hour (among other changes). Employers should bear in mind that a failure to pay the NMW can cause a whole host of problems from legal claims, to being named and shamed by HMRC.
Surely it is easy to avoid problems when it comes to paying the NMW? If you pay your staff at the NMW level you just put a note in your diary to ensure that their wages must be recalibrated from 1 April to reflect the increase? Simples.
However, not every employer who falls foul of the NMW legislation is a wilful rule breaker. There are many examples of employers who have inadvertently committed an NMW breach, perhaps by simply not having a better understanding of the system.
What counts toward NMW? Well, cash is king. Things like meals, childcare vouchers and fuel do not count. The only thing, other than money, that can count towards an employer’s NMW obligations is accommodation provided to the worker (up to certain allowable limits).
One of the more common pitfalls for businesses when it comes to paying NMW is the issue of staff charges/expenditure. In order to calculate whether a worker has been paid NMW, a calculation must be done by dividing the total amount of wage they have received for a pay reference period (say a week or a month) by the number of hours worked in that period. Before the final numbers are crunched to give the actual hourly rate of pay, certain deductions must be taken into account. This is where unwary employers can be tripped up.
Certain payments made by a worker, either to the employer or a third party, which are expenditure in connection with the employment fall to be deducted from wages paid by the employer in assessing whether NWW has been met. For example, if next April a worker is paid £9.50 for one hour’s work at the new rate, but they have to spend £2 for a pair of safety goggles for the job, the employer has, in the eyes of the law only paid that employee £7.50 for that hour. If the employer reimburses the employee for the cost of the goggles, then there is no issue. If they do not reimburse the employee, there is an NMW breach. Items such as uniforms and essential tools are common examples.
In a recent case, Augustine v Data Cars Ltd, it was decided that rental charges for a taxi and a uniform should have been taken into account as deductions before assessing whether a taxi driver was paid NMW or not. Mr Augustine had to pay rental charges to his employer to hire a taxi from them (I say had to, that is not quite true as he could have provided his own car which would have avoided the charges). He had to pay similar charges for a uniform, although he only had to wear the uniform because he was a “gold driver” who did a higher number of fares (drivers who did less fares didn’t have to wear a uniform). The employer argued that because the charges for car and uniform were “optional” (he could have supplied his own car, and avoided the uniform charge by doing less jobs), they should not have been deducted when assessing NMW. The Employment Appeal Tribunal decided that these were both irrelevant factors; the test is whether the charges were in connection with employment, which they plainly were.
The take-away tip here is to think twice if your wage structure is based upon the NMW model. Certain payments or deductions imposed on the employee can have the end result of a costly and embarrassing NMW breach.
If you are in any doubt and would like a second opinion, contact a member of the Blackadders Employment Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.
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