If You Pay Any Of Your Staff National Minimum Wage please read on as this could affect you and your business. The frozen food stores Iceland have fallen foul of a HMRC inspection regarding National Minimum Wage and face a huge bill for underpayment, PAYE and NIC of £21million. This eye watering amount is based on £3.5million over six years plus there are potential penalties yet to be considered. Iceland who employ 25,000 people are fighting this decision.
The size of the underpayment has caused the Treasury Select Committee to question HM Revenue & Customs (HMRC) approach to NMW decisions.
The underpayments centre around two issues:
• A voluntary staff Christmas club – where they take a voluntary agreed amount from employees who wished to be part of the Christmas club fund and despite staff being able to withdraw their savings at any time and is managed by an independent Trustee. HMRC argues that this deduction brings the workers’ pay below NMW even though Iceland do not benefit from the deduction and the money comes back to the workers when they withdraw funds from the club.
• Shoes for staff working in the stores where Iceland’s company policy for staff working in the retail stores are advised to wear suitable flat sensible shoes. Warehouse staff are provided with free safety shoes. HMRC’s view is that this is in breach of NMW regulations (but not Health and Safety regulations) and calculated an underpayment of NMW based on two pairs of shoes per worker at £20 per pair over a period of six years.
Iceland have appealed the decision, so we will have to wait and see what the outcome will be on these two issues. However, for now, you may wish to consider you current NMW, deduction of wages from staff and your dress code policy.
So if you pay any of your staff national minimum wage and you would like us to review your dress code policy, please contact us immediately on 01706 565332.
Below is what HMRC say on deductions from pay on staff’s wages where it may reduce their minimum wage to below the current National Minimum Wage.
Deductions from pay and payments by workers that reduce minimum wage pay
Certain deductions made by you from a worker’s pay, or payments made by the worker, reduce pay for minimum wage purposes. Certain other deductions or payments do not reduce minimum wage pay.
The following deductions by you or payments by a worker will reduce a worker’s pay for minimum wage purposes:
- Deductions or payments by a worker for expenditure connected with the job Deductions which you make from a worker’s pay, or payments made by a worker to you, for items or expenses that are connected with the job reduce pay for minimum wage purposes. This could include, for example, safety clothing, uniforms, tools or other equipment needed for the job.
- Deductions for the employer’s own use or benefit If you make any deduction from the worker’s pay which is for your own use and benefit – for example, a deduction for meals or transport provided by you – the amount deducted will reduce pay for minimum wage purposes. It does not matter whether the worker can choose to buy the goods or services. You do not have to make a profit from such deductions for them to be for your own use and benefit. For example, if you provide transport at a loss, any deductions you make from wages for providing it help to reduce your loss. The amount you gain by making the deductions is for your own use and benefit.
- Payments to another person for expenditure connected with the job.
- Payments made by a worker to another person for items or expenses that are connected with the job reduce pay for minimum wage purposes. This could include, for example, safety clothing, uniforms, tools or other equipment needed for the job.
- Certain deductions or payments by the worker for accommodation If you provide accommodation to a worker there may be an effect on minimum wage pay if the amount you charge for the accommodation is over a certain level.
Deductions from pay and payments by workers that do not reduce minimum wage pay
The following deductions by you or payments by a worker will not reduce a worker’s pay for minimum wage purposes:
- deductions for income tax and National Insurance contributions
- deductions from pay allowed under the worker’s contract which relate to specific misconduct or payment by the worker of a specific penalty
- deductions from pay or payment by the worker because of an advance of wages or on account of an advance under an agreement for a loan
- deductions from pay or payment by the worker for the purchase of shares, other securities or share option, or any share in a partnership
- deduction from pay or payment by the worker to recover an accidental overpayment of wages
- deductions from pay that are not for expenditure connected to the worker’s employment or for your own use or benefit (see below)
- voluntary payments by the worker for the purchase of goods and services from you – for example payments for meals the worker has freely chosen to buy in the staff canteen (however, if you deduct money from the worker’s pay in these circumstances this will reduce minimum wage pay)
- certain deductions from pay and payments by the worker for accommodation if the charge for the accommodation is at or below a certain level (see below: Benefits in kind and accommodation).
- deductions from pay which are not connected to a worker’s employment or for the employer’s own benefit. A worker may want you to deduct money from their pay that they are liable to pay to other people – for example, their trade union subscription or pension contribution. These deductions do not reduce minimum wage pay provided the amounts are not expenditure required in connection with the worker’s employment or for your own use or benefit