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HMRC internal manual

National Minimum Wage Manual

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HM Revenue & Customs
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Deductions and payments from workers: deductions - general approach

Relevant legislation

The legislation that applies to this page is as follows:

For pay reference periods commencing

* on or after 6 April 2015; National Minimum Wage Regulations 2015, regulations 9 to 15
* before 6 April 2015; National Minimum Wage Regulations 1999, regulations 31, 32 & 33

General

With the exception of the circumstances detailed below, deductions an employer makes from a worker’s pay will always reduce national minimum wage pay if they are:

  • in respect of a worker’s expenditure in connection with the employment (NMWM11100)

or 

  • made for the employer’s own use and/or benefit and are not a liability owed by the worker and paid on his behalf to a third party.

For national minimum wage pay purposes, it is necessary to establish that a third party is completely separate from the employer. Where a third party is connected in some way the deduction will be treated as being for the employer and not a third party. Examples of where an employer and third party may be connected include where they have an owner, partner, director, business partner, office holder, shareholder or family member in common. This approach is consistent with the consideration given to employer provided living accommodation (NMWM10040).

Employer’s own use or benefit

A deduction is made for the employer’s own use or benefit where the deduction is made by the employer and the employer is free to use that money in any way they wish.

It does not matter

  • whether the employer makes a profit from the transaction or not,
  • if the deduction is made from gross or net pay,
  • if the deduction is made under an agreement entered into with the worker,
  • whether or not the worker benefits from the arrangement

Exceptions

However a deduction will not reduce national minimum wage pay if it is a:

  • contractual deduction relating to misconduct and discipline (NMWM11060)
  • contractual deduction for conduct relating to ‘any other event’ (NMWM11065)
  • deduction to repay a loan or advance of wages (NMWM11150)
  • deduction to recover an overpayment of wages (NMWM11140)
  • deduction to purchase shares, other securities or share options or to purchase any share in a partnership( NMWM11190)
  • deductions made by an employer who is a local housing authority or registered social landlord for the provision of living accommodation and the accommodation offset does not apply (NMWM10180)
  • deductions made by an employer who is higher or further education institution for the provision of living accommodation and the accommodation offset does not apply (NMWM10190).

Applying deductions to a pay reference period

Deductions will reduce national minimum wage pay in the pay reference period they are made, even if they are in respect of other pay periods.

For example: An employer makes a deduction as a deposit for providing a uniform in week 1. This is a deduction in connection with the employment and reduces the calculation of national minimum wage pay.

When the worker leaves in week 3, the uniform is returned and the deposit refunded. The refund will increase national minimum wage pay in week 3. The deduction cannot be ‘reallocated’ to offset against the refund.

Please refer to (NMWM10000) for guidance on the treatment of deductions in respect of accommodation.