NMW update: optional work-related expenses - when does it reduce pay?

Unreimbursed work-related expenses incurred at the choice of a worker will now reduce their pay for National Minimum Wage (NMW) purposes, following the impact of a recent decision made by the Employment Appeal Tribunal.

Pay for NMW purposes is reduced by unreimbursed expenses incurred by a worker which are “in connection with the employment”, under Regulation 13 National Minimum Wage Regulations (2015). HMRC’s interpretation of Regulation 13 sets a relatively high benchmark where an expense will only reduce pay when it is a “requirement of the work, rather than by choice”.

HMRC’s approach was followed when the case of Augustine v Data Cars was first presented to the tribunals last year. At that time, the Employment Tribunal held that vehicle rental expenses and uniform costs incurred by a hire car driver were optional and therefore did not count as a NMW reduction. It decided that the driver could have provided his own car and uniforms were only required for premium designated rides, which the driver did not have to undertake.

On appeal this year, the Employment Appeal Tribunal (EAT) disagreed. It read Regulation 13 more broadly and reduced the benchmark required insofar that expenses do not have to be a requirement of employment, nor does it have to be necessarily incurred or wholly or exclusively incurred. The test is satisfied when the reason for the expenses being incurred is because of work.

The impact

The EAT’s decision has far-reaching consequences for employers and it demonstrates varying interpretations of the regulations. It is no longer relevant whether an expense is “mandatory” or “optional” when determining if the minimum level NMW pay has been met.

Employee purchases of additional uniform items over and above the dress requirements and optional training, such as CPD to improve knowledge and performance are some examples which could now be seen by HMRC as reducing pay for NMW purposes as a result of this ruling. Other areas for consideration could include face masks, mobile phone devices and IT equipment if working at home.

While we await to see how BEIS (responsible for NMW) and HMRC (responsible for policing NMW compliance on BEIS’s behalf) respond to the EAT decision, employers should proactively review their current practices, particularly starting with their dress codes and expense policies.