In a recent case, the Employment Appeal Tribunal (EAT) has gone against HMRC guidance on which employee expenses are relevant when calculating if an employee is paid the National Minimum Wage (NMW).
National Minimum Wage Regulations 2015
These regulations govern how the NMW is calculated. They state that expenses that a worker incurs in connection with their employment, and which are not refunded by the employer, should be taken into account when calculating whether the NMW has been paid. Their hourly pay must meet the NMW after these expenses have been deducted.
The case
A cab driver was required to pay various amounts to his employer, including:
- a circuit fee;
- a deposit; and
- a rental amount for equipment installed in his cab that enabled him to accept jobs and communicate with the employer.
Other expenses included cleaning, insurance and fuel costs.
In addition, he rented the vehicle from a car hire company linked to the employer's business instead of using his own car. He also bought a uniform from the employer, which was required to do a certain level of work described as 'silver', 'gold' or 'business class'.
The cab driver took his employer to an Employment Tribunal for not paying him the NMW. He claimed that the expenses were necessary to perform his job and so should have been deducted from his income in the calculation of whether he was paid the NMW.
The Employment Tribunal
The tribunal agreed that most of the cab driver's expenses were incurred in connection with his employment and should be deducted.
However, the tribunal decided that 2 of the expenses did not need to be deducted as they were optional and not a requirement of his employment:
- Car rental cost
The cab driver 'was not required to rent a vehicle from the Respondent or its associated company... he could have provided his own vehicle...'
- Uniform cost
The cab driver 'was not obliged to purchase a uniform: he only needed a uniform if he wanted to do a certain level of work ... This was entirely optional.'
The tribunal was following HMRC guidance on the topic, which stated that when calculating if pay meets the NMW, expenses are only relevant if they're incurred due to a 'requirement of the work, rather than by choice'.
The Employment Appeal Tribunal (EAT)
The cab driver appealed to the EAT. He argued that it didn't matter if the expenses were optional – the only relevant issue under the NMW regulations was whether or not they were incurred in connection with his employment.
The EAT agreed that this was the only relevant issue and that the expenses did not have to be a requirement of his employment to be deducted. This meant that the tribunal had incorrectly applied the NMW regulations and decided the matter on a 'different and irrelevant basis'.
What this means for you
You must be careful not to take the wrong approach when determining which of the employee's expenses to deduct.
The test is a simple one. If an employee incurs expenses in connection with their employment, and you did not refund those expenses, then you must deduct them for the purposes of calculating whether you paid the NMW.
This decision is also a reminder that official guidance – even from HMRC – isn't necessarily legally binding.