In the recent case of Augustine v. Data Cars Ltd, the Employment Appeal Tribunal (EAT) held that a taxi driver’s car and uniform rental payments were deductible from his wages for the purpose of calculating the national minimum wage (NMW), since they were incurred in connection with his employment. This meant that his employers had not paid him the full NMW.
The Claimant was employed as a taxi driver by the Respondent. In order to undertake his role, he had the option of either providing his own personal vehicle or using a rented one. Initially, the Claimant used his own leased vehicle, but several weeks into his employment he began renting a vehicle from a company associated with the Respondent. He also hired a uniform from the Respondent. While this was not a requirement of his employment, it was needed to earn the status of “gold driver“, which would allow him to undertake a certain level of work.
The Claimant’s employment continued for a number of months before it was brought to an end. He subsequently raised various employment tribunal claims against the Respondent. One of the claims was that he had not been paid the NMW.
Employment Tribunal decision
The Employment Tribunal (ET) held that certain payments should have been deducted from the Claimant’s salary in calculating whether or not he had been paid the NMW. These included insurance payments and fuel expenses. However, it found that, since the car and uniform rental payments were optional rather than requirements of the Claimant’s employment, they were not deductible for NMW purposes. In relation to the car, the ET noted that the Claimant had the option of using his own vehicle but had elected not to do so. Similarly, there was no requirement for the Claimant to hire a work uniform – he had chosen to do so to enable him to perform certain work, but that was entirely optional.
The Claimant appealed against the ET’s decision.
Employment Appeal Tribunal decision
The EAT allowed the appeal, holding that the ET had erred by applying the incorrect legal test. The EAT considered the National Minimum Wage Regulations 2015 (NMW Regulations) and stated that the correct test is whether the expenditure is 1) “in connection with employment” and 2) not reimbursed by the employer. In particular, the expenditure did not have to be a requirement of the employment – it did not have to be necessarily incurred, nor wholly or exclusively incurred, in connection with the employment. On this basis, it was irrelevant that the Claimant was able to use his own car or that he had elected to rent the work uniform. He had clearly incurred both expenses in connection with his employment and both costs were therefore deductible for the purposes of calculating whether he had received the NMW. By not making these deductions the employer had therefore failed to pay him the full NMW.
Points to note
As this case demonstrates, the NMW Regulations are complex and contain various technical traps which could catch employers out. Further, the EAT’s decision in this case appears to be at odds with the HMRC National Minimum Wage Manual. While both confirm that expenses should be deducted for the purposes of calculating the NMW if they can be shown to be expenditure in connection with employment, the latter draws a distinction between expenses which are a requirement of work and expenses incurred by “free choice” of the worker. If an expense falls within the second category and is a payment from the worker to the employer the HMRC guidance states that the payment will not be deducted when assessing whether the worker has been paid NMW. It should be noted that the HMRC Manual is guidance only, so employers should consider taking further advice on this point.
Employers should be wary of the implications of getting NMW calculations wrong. In April 2020 the government relaunched its scheme of publishing the names of businesses who fail to pay their workers the NMW. Non-compliance with the NMW Regulations could therefore lead to employers being “named and shamed” by the Department for Business, Energy and Industrial Strategy, which, even if the error was inadvertent, could result in severe reputational damage. Given the complexity of the Regulations, it is advisable for employers to get ahead of this and undergo an NMW audit so they can identify errors, based on the HMRC guidance, and make appropriate corrections before HMRC intervenes, although they should bear in mind that, in the event of tribunal claims, the ET could take a different (and more favourable to the employee) view.
If you are interested in an NMW wage audit for your business or require further advice on this topic, please contact a member of our team who would be delighted to assist.