HMRC successfully appeals tribunal ruling on national minimum wage

Middlesbrough Football Club was last week on the wrong end of an Employment Appeal Tribunal judgment that reversed a ruling made a year ago over deductions to payments to staff.

The club had been operating a payroll deduction arrangement allowing its employees to agree to buy football season tickets by instalments. In some cases, these deductions took the pay received by employees below the national minimum wage. HMRC subsequently issued enforcement notices requiring the club to make up the shortfall of wages and pay statutory penalties.

Early last year the football club successfully challenged the Middlesbrough employment tribunal’s ruling. The tribunal found that the deductions amounted to “payments as respects the purchase by the worker of goods or services from the employer”, which is one of five reductions in pay allowed in the NMW regulations 2015.

But last week HMRC overturned this ruling on appeal. The main issue was whether a deduction made at source by the employer, and kept in the employer’s bank account for its own use, met the statutory definition of “payment [for] purchase of… services.”  The EAT, presided over by Judge Auerbach, held that it did not.

The tribunal panel ruled that the legislation deliberately contrasted payments and deductions, and permitted only the former. Previous case law had sought to ensure that the wages of low-paid workers actually reached their pockets and they were therefore more likely to make a genuine choice as to whether to make a purchase from their employer or not.

Middlesbrough FC ran three alternative arguments for upholding the tribunal’s decision. These were all rejected by the EAT. It held that the payroll deductions were for the employer’s “own use and benefit”; the deductions were not “in respect of the worker’s conduct, or any other event”; nor were they made on account of a “loan” or “advance of wages”. Finally, the EAT rejected the club’s argument that new guidance issued by the Department for Business Energy and Industrial Strategy in February 2020 supported its position.

Barrister George Rowell from Exchange Chambers represented HMRC at the employment tribunal and EAT. He said: “This judgment brings a welcome clarification to an area of law which was thrown into confusion by the decision of the Middlesbrough employment tribunal last year. It upholds the fundamental principle that employers are responsible for complying with the minimum wage rules and are barred from contracting out of them except in very limited circumstances.

“Payroll deductions which take pay below the minimum wage are allowed only within clearly defined statutory exceptions, which do not include schemes to buy the employer’s products.

“It is now clear that the law requires the money to reach the employee’s pocket before it may be used to make a purchase from the employer. As the employment appeal tribunal held, this approach serves the minimum wage’s purpose of protecting low-paid employees and avoids the need for extensive investigations as to whether the employee exercised a genuine choice about making the purchase or not.”

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