Deductions from NMW

Deductions from NMW

What deductions should be made to workers’ income to calculate if NMW is being paid? The worker must still be left with at least the NMW after these deductions and payments have been taken into account. It can be a tricky question. In a recent case the Employment Appeal Tribunal (EAT) has given some guidance on deductions.

The facts in the case were as follows. In 2016 Mr Augustine worked as a mini cab driver for Data Cars Ltd. He was with them for less than a year. At the start he provided his own vehicle, but then rented a vehicle from a company associated with Data Cars. 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 and was also required to have insurance, he incurred fuel and cleaning costs. In addition, he bought a Data Cars uniform.

He argued that he was an employee or worker of Data Cars and that he was entitled to the NMW. There was a second issue as to whether, for the purposes of the NMW calculation, certain payments made by Mr Augustine should be deducted.

His claim was partly successful. 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, so these costs did not need to be taken into account when calculating the NMW.

On appeal, the EAT concluded that both the cost of the car hire and the cost of the purchase of the uniform were deductions. The Court looked at the wording of the National Minimum Wage Regulations 2015 and found that the statutory test is whether the expenditure is “in connection with employment” (and not reimbursed by the employer). It said 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. It was clear that he hired the car and wore the uniform in connection with his employment.

The EAT also said 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 employer must demonstrate that it has met its obligation to pay the correct NMW.

This is a difficult decision for employers as it may confuse matters as to what costs should be considered as deductions when calculating the NMW, if they simply have to be shown to be expenditure in connection with employment. In this context the word “employment” is used widely to cover workers, as well as employees.

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 you should take advice on this point and not rely simply on the HMRC guidance. Augustine v Data Cars Ltd


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Although every effort has been made to ensure the accuracy of the information contained in this blog, nothing herein should be construed as giving advice and no responsibility will be taken for inaccuracies or errors.

Copyright © 2021 all rights reserved. You may copy or distribute this blog as long as this copyright notice and full information about contacting the author are attached. The author is Kate Russell of Russell HR Consulting Ltd.