The Employment Appeal Tribunal (EAT) has provided guidance on deductions from wages for training and accommodation expenses. The issue arose in the case of Commissioners for HM Revenue and Customs v. Ant Marketing Ltd (UKEAT/0051/19).
Under the National Minimum Wage Regulations 2015 (the Regulations), certain deductions from wages will not reduce the amount of pay taken into account when calculating whether employees are paid the national minimum wage (NMW). However deductions for the purpose of accommodation provided by the employer are treated as reductions in pay, if they exceed the accommodation allowance. Deductions in relation to workers’ expenditure in connection with employment are also treated as reductions.
This case concerned Ant Marketing Ltd (Ant), a telemarketing company. On commencement of employment, Ant’s telephone operatives were required to undertake a three-day training course. Under the terms of their employment contracts, operatives who left employment within 12 months were obliged to repay a portion of their training fees, up to £350. Repayments could be deducted directly from workers’ salaries.
In addition, many of Ant’s workers were tenants of residential flats owned by Mayfield Properties Limited (Mayfield). Some of the workers requested that their rent be deducted from their wages and paid directly to Mayfield, although this was not a contractual obligation. The rents were at or below market rates. Both Ant and Mayfield were owned by the same sole shareholder.
HMRC issued Ant with underpayment notices in respect of 359 workers. Ant appealed to the Employment Tribunal (ET), arguing that the proper interpretation of the Regulations was that Mayfield was not the employer so the accommodation offset rules were simply not engaged.
There were two essential questions in this case:
- whether, for the purposes of the Regulations, the term “employer” in relation to providing accommodation should be construed more widely to include those connected with an employer; and
- whether repayment of the training costs was a deduction which reduced pay for the purposes of NMW.
On the first question, the ET held that the definition of “employer” in the Regulations was exhaustive, and could not include landlords to whom employers are connected. To hold otherwise would effectively mean rewriting the legislation. HMRC appealed to the EAT which upheld the ET’s decision.
However, the EAT went on to suggest that HMRC may have been asking the wrong question. It noted that government guidance indicates there may be a range of situations in which employers can provide accommodation, including where the landlord and the employer are part of the same group of companies or have the same owner. Had the question been whether the employer can be said to be the provider of the accommodation, even though it is not the landlord, the appeal could “quite possibly” have been decided differently.
The EAT (again upholding the decision of the ET) held that the deduction of training costs did reduce pay for NMW purposes. Because the training was mandatory, it was akin to compulsory expenditures for uniforms or essential tools. The fact that the employer used repayments as incentives to remain in employment, or that it was a contingent liability, did not change the position. Further, it was erroneous to compare, as Ant had, the repayments to a situation where an employer may charge an employee for failing to return PPE on the termination of employment. Unlike PPE, employees cannot “return” their training.
This case provides helpful authority on the NMW impact of requiring repayment of mandatory training costs, which is a common obligation in employment contracts. Even more interesting are the EAT’s comments, although obiter, that an employer could be responsible for the provision of accommodation without being the landlord. Employers should be aware that, even if they do not own the rental accommodation, they are likely to face scrutiny in respect of any connection they have to the landlord.