National Minimum Wage: Deduction from Salary for Training Costs


2 mins

Posted on 14 Jan 2015

An employer who made a deduction from a final salary payment in respect of training fees the employee owed had paid the employee the national minimum wage (“NMW”), even though the deduction meant the employee actually received less than the NMW in her pay packet. The deduction could be ignored when calculating whether she had received the NMW.  

In Commissioners for HMRC v Lorne Stewart, LS attended a training course and agreed that she would repay part of the cost if she left within two years. When she resigned, a deduction was made from her final salary payment resulting in her final salary payment appearing to be below the NMW. HMRC issued a notice of underpayment against the employer who appealed to an employment tribunal.

The tribunal found that the deduction could be ignored by reason of Regulation 33(a) National Minimum Wage Regulations which provides that “any deduction in respect of conduct of the worker, or any other event, in respect of which he is contractually liable” should be excluded from the calculation. The employer had therefore paid the NMW.

The EAT rejected HMRC’s appeal. HMRC argued that the national minimum wage exemption should be construed narrowly and only applied to deductions made in respect of misconduct or something like misconduct, such as bad workmanship or negligence. The EAT disagreed. The words “any other event” should be interpreted as having some relationship to conduct for which the worker is responsible, but which does not necessarily amount to misconduct. So a voluntary resignation would be covered but not a dismissal for redundancy. Since LS resigned voluntarily the employer had been entitled to deduct the money due in respect of training fees without breaching NMW laws.

This suggests that the operation of clauses requiring repayment of training costs by an employee dismissed for reasons other than misconduct/poor workmanship (such as redundancy) could bring an employee’s wages below the NMW. Most employers who pay for training or similar costs only seek repayment if an employee resigns or is dismissed for gross misconduct. Requiring repayment in wider circumstances where the employee is not at fault, such as where an employee is dismissed for redundancy or as a result of a business reorganisation, could result in the employer breaching NMW laws if this results in the salary paid falling below the NMW.

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