• Pay deductions and the National Minimum Wage

Pay deductions and the National Minimum Wage

10 May 2022

Original content provided by BDO United Kingdom

Many employers inadvertently breach National Minimum Wage (NMW) rules when making deductions, or receiving payments, from workers relating to things such as Christmas savings schemes, purchasing of goods or services, uniform and training, which are not passed directly onto a third party on the worker’s behalf.

Employers still need to consider the implications of such arrangements on NMW even if:

  • The worker agreed to the arrangement
  • The deduction was taken from net pay
  • The payment was made from net pay
  • The deduction or payment made in isolation doesn’t bring pay below NMW rates.

Processes and monitoring

It is important that employers have processes in place to identify whether any arrangements bring workers below NMW rates and, if so, whether the deductions made, or payments received reduce pay under NMW rules. Pay should also be monitored regularly to ensure there is no breach of NMW in the future.

Clearly, the risk of breaching NMW is higher where employers have a variety of arrangements with their workers – it is the aggregate of all payments received and deductions made that reduce pay under NMW rules in the pay reference period that must be monitored.

Employers must also manage worker expectations and make clear that the arrangements are only available where this does not result in an infringement of the NMW rules.

Deductions in the current climate

With the recent increase in the cost of living, employers are likely to be receptive to additional benefits that may support their workforce. Many employers have already implemented schemes, via third parties, that enable a worker to gain access to the salary they have already earned in the pay period and then repay the third party on payday via their employer.

Care must be taken by employers to ensure that the arrangements in place, although voluntary for the worker to sign up to, do not result in an infringement of NMW rules.

Expensive mistakes

Even deductions from pay, and payments received, from workers that many employers would deem to be paid well above NMW, could still inadvertently fall foul of the NMW rules.


In April 2022, a worker earning £30,000 per annum (categorised as an unmeasured or salaried worker) opts to purchase an annual parking space from their employer and pays in full (£900). At the same time she joins the savings scheme (£100 a month) and has meals purchased from the staff canteen deducted from pay (£4 per day).

This could give rise to an inadvertent NMW breach, as NMW earnings for April before deductions are £2,500; however, after deductions, this has fallen to £1,408. This results in an NMW underpayment based on 7.5 hours worked each day for 23 days.

Even though the worker has requested this, and has received the services purchased, the fact that they have been paid less than NMW leads to consequences for the employer: the employer will be required to make good any underpayments that may have arisen and may face penalties.

Protecting your organisation

The overriding message is that for any organisation which makes the kinds of deductions or receives the payments explained above, an awareness of how they might be construed for NMW purposes is vital.

An independent review and risk assessment can help in identifying not only inherent problems but also appropriate steps that can be taken to avoid future problems.

If you have any questions regarding your NMW position and require assistance, please do not hesitate to get in touch with Geraldine Browne or Renee Dawson.