National minimum wage - what to deduct?

The intricacies of the calculation of national minimum wage (NMW) is something that is dreaded by most employment lawyers and HR professionals. It is unnecessarily complicated. One of the many knotty areas is what deductions should be made to workers’ income to calculate if NMW is being paid. In the recent case of Augustine v Data Cars Ltd the Employment Appeal Tribunal (EAT) has given some guidance on deductions.

In summary, certain deductions from wages or payments by a worker must be taken into account when calculating a worker's hourly pay as these deductions or payments will reduce the amount of the total earnings for NMW purposes. The worker must still be left with at least the NMW after these deductions and payments have been taken into account.

Facts

Mr Augustine worked for Data Cars Ltd as a mini cab driver for less than a year in 2016. During this time, he paid fees totalling £160 a week to Data Cars for equipment to be fitted in his car and for access to the booking app to allow him to carry out his work. Initially he provided his own vehicle, but then rented a vehicle from a company associated with Data Cars. He was also required to have insurance and, whilst working for Data Cars, he incurred fuel and cleaning costs. In addition, he bought a Data Cars uniform.

He brought claims in the Employment Tribunal, claiming he was an employee or worker of Data Cars and that he was therefore entitled to the NMW. The Tribunal agreed that he was an employee. There was then a dispute as to whether, for the purposes of the NMW calculation, certain payments made by Mr Augustine fell to be deducted.

The Tribunal found that the fees he had paid for the equipment, access to the app, the insurance, cleaning and fuel costs should be deducted for NMW purposes. However, the Tribunal found that the cost of car hire and the purchase of the uniform were both optional expenses, as Mr Augustine could use his own car and the uniform was not obligatory. Therefore these costs did not need to be taken into account when calculating the NMW. The decision was appealed. 

Decision

On appeal, the EAT held that both the cost of the car hire and the cost of the purchase of the uniform were deductions. The EAT looked at the wording of the National Minimum Wage Regulations 2015 and stated that the statutory test is whether the expenditure is “in connection with employment” (and not reimbursed by the employer). They found that the expenditure does not have to be a requirement of employment. It does not have to be necessarily incurred nor wholly or exclusively incurred in connection with the employment. It was therefore irrelevant that Mr Augustine could use his own car or that the uniform was not obligatory. He plainly hired the car and wore the uniform in connection with his employment.

The EAT also clarified that when a worker or employee asserts that they have been paid less than the NMW it will be presumed that they are correct unless the contrary can be established. This means that the onus falls on the employer to demonstrate that they have met their obligation to pay the correct NMW.

Comment

This is a worrying decision for employers as it muddies the water further as to what costs should be taken into account as deductions when calculating the NMW, if they simply have to be shown to be expenditure in connection with employment. It’s also worth noting that in this context the word “employment” is used widely to cover workers, as well as employees.

Commentary in the HMRC manual says that “Any deduction or payment from the worker in respect of expenses incurred in connection with his employment will always reduce national minimum wage pay”. However, the manual also distinguishes between purchases or expenses incurred by choice, rather than as a requirement of work. This HMRC guidance seems to be at odds with this EAT decision and so employers should take care to take advice on this point and not necessarily rely simply on the HMRC guidance.