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Home > News > National minimum wage – when are deductions ‘in connection with’ the employment?

National minimum wage – when are deductions ‘in connection with’ the employment?

10 March 2022 | Nick Jones

The law sets out the minimum hourly rates that workers must be paid. It isn’t always as simple as simply paying that minimum rate for each hour worked. Some deductions from the worker’s pay, or payments made by the worker, are relevant and will reduce the amount of the total pay for National Minimum Wage (NMW) purposes. The worker must still be left with at least the NMW after these deductions or payments are taken into account. The Employment Appeal Tribunal (EAT) has looked at this issue recently in Augustine v Data Cars. 

Background of Augustine v Data Cars case 

Mr Augustine worked as a taxi driver. Initially he provided his own vehicle, but then he paid to rent a vehicle from an associated company. He paid for insurance, fuel and cleaning costs. He also purchased a branded uniform from the employer so that he could work as a designated ‘gold driver’.   

His pay was below the NMW once the costs of his uniform and car rental had been taken into account and deducted. Mr Augustine brought claims in the employment tribunal, claiming he was an employee or worker and therefore entitled to the NMW. The employer disputed that his expenses should be deducted, arguing that hiring a car and buying a uniform to be a ‘gold driver’ were optional and not ‘in connection with’ his employment.

Employment Tribunal decision 

The tribunal found the fees, insurance, fuel and cleaning costs should be taken into account and deducted when calculating NMW. These were ‘in connection with’ employment. However, the car hire and uniform hire were optional expenses, not ‘in connection with’ employment and should not be deducted. Mr Augustine was not required to rent a car as he could have used his own vehicle, whether owned or leased. He didn’t have to buy a uniform and be a ‘gold driver’. The employee appealed.  

EAT Tribunal decision 

The EAT said that both the cost of the car rental and uniform should be deducted for the purposes of calculating the NMW. They reviewed the wording of the NMW Regulations 2015 and said that the statutory test was simply whether the payments were ‘in connection with’ employment. This did not mean the payments needed to be a requirement of the employment, or wholly or exclusively incurred in connection with the employment. The payments for the uniform and car were both ‘in connection with’ his employment and should be deducted for the purposes of the NMW calculation. Mr Augustine was required to wear the uniform as a designated ‘gold driver’ and he plainly wore it in connection with his employment, which is why he paid for it. Equally, it was irrelevant that Mr Augustine could have chosen to use his own car to provide the taxi services.  He rented the car to do so and this was connected to his employment. 

What does this mean for employers?  

This decision suggests that any costs incurred by an employee or worker that could be linked to employment should be deducted when calculating NMW, even if the costs are a result of the employee’s own choice. Employers who encourage staff to buy items which are not reimbursed, such as uniform or equipment, should ensure their employees’ rates of pay do not slip below the NMW.  

That said, this decision appears contrary to HMRC guidance, which suggests that there needs to be some degree of legal or contractual requirement for the worker to incur the cost before it can be categorised as ‘in connection with’ employment. A differently constituted EAT may take this into account in future and make a different decision. In time, HMRC may add further clarification. In the meantime, employers should take note of this decision and err on the side of caution.  

Specialist employment law advice 

If you are an employer looking for further legal advice in relation to National minimum wage or another employment issue, then our specialist employment team can assist you. Please get in touch by calling 0117 906 9400 or email Alternatively, please complete our contact form. 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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