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HMRC internal manual

National Minimum Wage Manual

From
HM Revenue & Customs
Updated
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Deductions and payments from workers: contractual deductions or payments - for conduct and discipline

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 12(2)(a)
* before 6 April 2015; National Minimum Wage Regulations 1999, regulations 33(a) & 35(a)

When considering contractual deductions and payments from workers it is necessary to consider both:

  • conduct and discipline, and
  • conduct relating to ‘any other event’ (NMWM11065).

Conduct and discipline

A deduction made from a worker’s pay or a payment made by the worker to his employer which is both:

  • a specified contractual liability of the worker AND 
  • in respect of the worker’s misconduct (or something related to misconduct)

will not reduce national minimum wage pay.

The circumstances relating to the deduction or payment must be specified in the worker’s contract (i.e. the worker must be contractually liable) and the clause must be in respect of misconduct of the worker or a related matter, such as negligence. If a worker’s contract is amended to include a previously omitted entry relating to misconduct, then that entry may only be applied to misconduct events taking place after that contractual amendment was made.

Where deductions are being made from workers it is reasonable to expect the employer to provide evidence to a NMW Compliance Officer regarding the exact circumstances of such deductions. If an employer suggests that a deduction is stipulated as misconduct in a worker’s contract (written or otherwise) and the clause makes the worker contractually liable for a deduction, then it is reasonable to see some evidence to expressly support this.

Example 1 - A shop worker is contractually required to make good any shortfall from his till. The shortfall results from the worker’s negligence. Therefore, any deduction to meet such a shortfall will not reduce national minimum wage pay.

This can apply to a group of workers, for example, those who share a till, however the employer must be able to relate the deduction to misconduct.

Example 2 - a worker is supplied with personal protective equipment free of charge by his employer. The worker’s contract stipulates that this must be returned in good condition (except for wear and tear) at the end of the employment otherwise the worker must bear the cost. The worker leaves the employment but does not return the equipment. The employer deducts the cost from the worker’s final pay. The worker’s action in not returning the equipment is related to misconduct and therefore the contractual deduction for the cost of the equipment does not reduce the worker’s national minimum wage pay in the final pay reference period.

Example 3 - An employer paid for the worker to go on a two week course; the worker was contractually obliged to go and faced penalties if they did not, but only went for the first week and then refused to attend further. The refusal to attend is misconduct. The employer charged the worker the amount of the contractual penalty. The payment or deduction would not reduce national minimum wage pay.

See NMWM11070 if an employer makes deductions or payments as specified in a worker’s contract which are not related to conduct and discipline or conduct relating to ‘any other event’ matters.