Some tricky issues relating to pay

Pay is one of the most sensitive issues that employers need to deal with. When there are disputes over issues such as calculating a bonus, reclaiming an overpayment or something similar, the situation can easily become very tense.

Paying the National Minimum Wage It is widely understood that employees must be paid an amount that is not less than the National Minimum Wage (NMW). However, it is also widely understood that when we receive our payslip each week or month there is a gross amount and a net amount – with the net amount being that which we actually receive after deductions have been made. Does the employee have to be paid the NMW before or after those deductions? In the case of Commissioners for Revenue and Customs v Lorne Stewart plc [2014] an employee went on a training course and signed an agreement that she would repay part of the cost of the training course if she left the organisation within two years of doing the training. Subsequently, she did resign before two years had elapsed. In accordance with the agreement, the employer deducted the cost of the training course from her final salary payment. Although her gross pay for her final salary payment was more than the NMW, her net pay after this deduction had been made was less than the NMW. She reported this to HM Revenue & Customs (HMRC) which reviewed the situation and then took legal action against the employer. The employer was not in the wrong. It was entitled to make the deduction, in accordance with the agreement with the employee. The cost of the training course did not come under the category of deductions that cannot be made before ensuring that the NMW has been paid. What are these deductions? As long as the gross pay is more than the NMW, the following deductions can be made even if this means that the net amount is less than the NMW.

  • PAYE and National Insurance.
  • Repayment of a loan or advance of wages.
  • Repayment of an accidental overpayment by an employer in a previous month/week.
  • Subscriptions (eg to a charity) or deductions that the employee has agreed to (eg to a pension scheme).
  • Any contractual deductions (for example, an agreement to repay the cost of a training course – as in the case reported here).

Note also that an employer can make deductions if the employee is taking strike action. The NMW is calculated according to the number of hours of work; of course, if an employee is taking strike action then he or she is not working.

Advice should, of course, be sought at each stage in dealing with these matters. Please call our Legal Advice Helpline from Stephensons to speak with an advisor who will be more than happy to discuss individual circumstances with you, contacts details for Stephensons are in your policy documentation or please call one of the dot2dot team for more information.