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HMRC internal manual

National Minimum Wage Manual

From
HM Revenue & Customs
Updated
, see all updates

Deductions and payments from workers: purchase of goods and services from employer

 

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 & 13
* before 6 April 2015; National Minimum Wage Regulations 1999, regulations 32, 34 & 35(e) 

Where a worker purchases goods or services from the employer, the effect this has on national minimum wage pay depends on:

  • the nature of the purchase and
  • how the purchase is made; i.e.: is it either a payment or deduction?

Nature of the purchase

If the purchase is in respect of an expense (NMWM11100) or a requirement imposed on the worker by the employer, contractual or otherwise, then national minimum wage pay will be reduced, regardless of whether the transaction is a payment or a deduction.

However, if the worker makes the purchase as a free choice, the affect it will have on national minimum wage pay will depend on the method of payment.

Method of payment

If a free choice purchase is paid for via a payment from the worker to the employer, the payment will not reduce national minimum wage pay

However, if the same purchase is paid for via a deduction made by the employer, then the deduction will reduce national minimum wage pay, even if the worker freely chooses to make the purchase and/or signs their agreement to the purchase.

The box below summarises how different purchase methods can affect national minimum wage pay

Method of purchase Nature of purchase Effect on national minimum wage pay  
       
Payment to employer Employer Requirement Reduces national minimum wage pay Example 1
Payment to employer No requirement imposed and worker’s free choice to make the purchase Does not reduce national minimum wage pay Example 2
Deduction from worker’s pay Employer requirement Reduces national minimum wage pay Example 3
Deduction from worker’s pay No requirement imposed and worker’s free choice to make the purchase Reduces national minimum wage pay Example 4

Example 1

A worker is told he must purchase clothing from the employer, he does so and makes a cash payment to the employer - the payment will reduce national minimum wage pay

Example 2

A worker in a clothes store chooses to buy clothes from the employer. He pays for the clothes in cash after payday. The payment made to the employer does not reduce national minimum wage pay. (This is simply the worker choosing to spend their own money as they wish after receiving their pay from their employer.)

Example 3

A worker has to purchase a black tee shirt with a logo from the employer; the deduction of the cost is made from the worker’s pay. The amount deducted reduces national minimum wage pay.

Example 4

A worker chooses to purchase a meal in the works’ canteen and the cost is deducted from his pay at the end of the week. The amount will reduce national minimum wage pay

Employers may have difficulty understanding how different arrangements regarding a purchase have different consequences on the calculation of national minimum wage pay. However, it may help to explain that legislation was designed to protect workers from being exploited by employers who could automatically make unreasonable deductions from the worker’s pay without giving a choice to the worker. The overriding objective of the national minimum wage legislation is to ensure workers are paid at least national minimum wage rates and then have a free choice about how they use their pay once they have received it.

It is important to understand how such arrangements actually work in practice and to ensure both parties’ understanding of the arrangements is the same.

Example 5

An employer describes arrangements involving “advances of pay” made to pay bus fares which are then deducted from pay. The employer provides supporting documentation which is a list of workers signing to request an advance. The employer describes the arrangement and says that the payroll deductions are to recover the advance. However when questioned the workers advise that they do not in fact receive any advance of pay. They sign a document on boarding the works’ bus and an amount is deducted from pay for their fares. It is important to ensure such arrangements are actually advances (NMWM09210) rather than a “paper exercise” which is an attempt to circumvent national minimum wage legislation.