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Written by JMW Solicitors LLP
Can making deductions from wages for training costs and accommodation expenses put you in breach of minimum wage law?
Yes, in certain circumstances, according to the recent case of Commissioners for HM Revenue and Customs v Ant Marketing Ltd. How will this impact your company? JMW Solicitors LLP take a closer look at this case and how it will impact employers.
Ant Marketing Ltd (Ant), a telemarketing business, required all new operatives to undertake mandatory, paid induction training. Due to the expense of this training, operatives were expected upon commencement of employment to sign a training agreement, stating that they would remain in the service of the organisation for at least 12 months. If the operative left before this, or did not complete the training, they would be liable to repay some of the training costs.
Some of the workers were also tenants in local flats, which, although not owned by the employer, were owned by a separate company with the same managing director. Accordingly, some of the workers asked for their rent to be deducted from their wages and paid to the separate company. This was not a requirement of their employment.
HMRC issued Ant with National Minimum Wage underpayment notices as a result of the training fees and accommodation costs. Ant appealed against this underpayment notice to the employment tribunal.
The tribunal considered the issues of potential underpayment associated with training and accommodation separately.
When considering the training deductions, the tribunal dismissed the employer’s appeal, as the deduction fell within the remit of Regulation 13 of the NMWR. This training was mandatory for the operatives in the same way that wearing a uniform was mandatory. The worker had no choice but to undergo the training if they wanted to take up employment with Ant and the employer was therefore in breach of the law by deducting from their wages to fund this if they left early.
When considering the accommodation issue, the appeal was upheld. Although the rent paid through deduction did exceed the accommodation offset, the crucial point was that the flats were not technically owned by the employer itself, but a separate company owned by its managing director. The tribunal held that, following section 11 of the Interpretation Act 1978, the term “employer” as used in regulation 14 had the meaning given to it by section 54 of the NMWA 1998, that is, “the person by whom the employee or worker is…employed”. Therefore, as the owner of the flats was not the “employer”, accommodation offset rules were not engaged.
Both the employer and the HMRC appealed against the two rulings respectively.
The employer argued that the tribunal had misinterpreted Regulation 13 of the NMWR, disputing that recouping training costs was a deduction for the purposes of this regulation. However, the EAT upheld the tribunal’s ruling and agreed that the training was mandatory. It made no difference that only part of the training costs were recovered; the NMWR did not require the deduction to be the full amount to be in breach of the law. The EAT held that that expenditure need not be mandatory in order for it to be “in connection with employment”, but the fact that it is mandatory, and that employment cannot be secured without it, means that the expenditure is more likely to be regarded as being in connection with employment.
In relation to the accommodation issue, the HMRC argued that the tribunal should have taken a “purposive” approach to the interpretation of Regulation 10 of the NMWR. This was because the legislation had been designed to protect the rights of low-paid workers from organisations seeking to recoup their wages through accommodation. In this situation, the HMRC argued that the employer and the landlord were the same.
The EAT also dismissed this argument, finding that to interpret Regulation 10 in the way the HMRC outlined would be to effectively re-write the statute. The definition of an “employer” had clearly been stated by the NMWA and if there was an intention by the NMWR to change this, it should have been more apparent.
When exercising a contractual right to deduct training fees from wages, employers should ensure that the employee is still being paid at least the minimum wage for that pay reference period. This ruling sends a clear message regarding the issue of training costs, stating it could serve to breach minimum wage law if they are recouped if this training is deemed essential to the role. While each case is fact-specific, organisations should proceed with care in these situations.
Employers should also be aware that, even if they do not own property being rented out to workers, if they are connected to the landlord in some way, they are likely to face scrutiny as to whether they are in fact responsible for the provision of accommodation. If so, any deductions from wages for the payment of accommodation costs could be treated as a reduction for NMW purposes.