My client runs a hairdressing salon and many of her employees are on minimum wage. From time to time they buy products from the salon and rather than paying for these products the cost is deducted from their wages with the employees agreement. HMRC are claiming that as a result of these deductions the employee is not receiving minimum wage. This does not sound logical to me. If the staff member had been paid their wage in full and then paid for the products they had received they would have been in the same position.
I know a lot of the legislation is daft but does any one know whether HMRC is right as they are threatening a pile of penalties.
Replies (14)
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Daft - but probably correct
I've encountered this before where an employer cannot deduct from an employee's wages if the deduction brings them below minimum.
Better to just get them to pay direct.
Deductions
If the products are for personal use then there should be no issue as it is not to the employers benefit by attempting to get round the legislation.
If the deductions are made for items to be used in the ply of their trade then they should be included in the calculation of the NMW.
A simple way around this would be to pay the wages without the deductions & make the sale separately.
NMW
If the employees are buying the products for their own use then there is no problem. Wages are calculated before deductions and if they clearly show gross wages are above NMW then HMRC are wrong and again proving to be over zealous. Would the same apply to an earnings attachment?
Mind you its not unusual for HMRC to look to penalise is it.
My stock reply in this instance would be "lets see what the judge says"
NMW
This raises its head from time to time in other circumstances. Basically HMRC seem to object to deductions which are seen as being to the employer's benefit. An example of this is that they insist that employers can't deduct the usual £1 admin fee for processing an earnings attachment from employees on NMW.
I suppose that if the employer makes a profit on the items sold to the employees then the argument might hold a little water, but it seems very nit-picking. After all, the staff are presumably not forced to buy these items!!!
As long as
the deduction is after tax & NHI I can't see that it's any of their business. What, for instance, would be the case if someone on NMW had a company van and opted to pay for private mileage via payroll?
only two questions
Has the employee paid tax and nic on the gross and was this shown on the P60 if so the inland revenue are talking rubbish.
Was the selling price of the goods used.(i.e. not cost)
appeal
Resist and appeal you have a very inexperienced person dealing with the case.
Only penalties I can see are for not sending in P11d's.the staff have a benefit arising from employment.
I know it seems daft, but HMRC are correct.
The legislation is worded such that anyone on minimum wage must receive the full minimum wage in their hand without any deduction, other than tax and NI. The daft thing is that if they were paid 1p an hour over minimum wage you can deduct what you like.
So forget logic (not a word HMRC understand), technically they are right. Just find a workround as suggested above. A penny an hour over the minimum wages simply gets rid of all these problems for 30-40p a week per employee.
NMW
I would still see what the judge says
If this deduction was for child support or to collect underpaid tax through a code no they would say nothing. More bloody red tape to strangle small business, well done HMRC
Deductions from wages
Products for personal use should be deducted from net pay, not gross pay, so there is not an issue with NMW. The employer though (if he or she is VAT registered), should ensure that he is accounting for output VAT on sales to staff as they count as a self supply.
Its mad but correct
I have a client who owns a Childrens Nursery. Some of the staff also use the Nursery to look after their own chidren and pay a discounted rate. The fee was being deducted from the Net Wage, (after it had been taxed and NIied).
The client had a NMW check and was told that due to these transaction she was paying under the NMW rate. In the legislation there is something about staff paying the Employer by this sort of deduction if it is benefiting the Employer and if the transaction brings the wage under the NMW rate its a no no.
Her staff even approved the deduction in writing but it still did not help the issue.
I think it is some historic protection. Going back to the 1800's employees often got paid with vouchers to use at the company shop where a margin was made on them.
It is a stupid thing HMRC are doing here because I can imagine the situation of some very small businesses where the Employer and Employee collude to create an advantage by deducting goods or services prior to the calculation of the Gross Wage thus doing the country out of VAT Tax and NI and possibly claiming benefits in addition because the gross wage is much smaller. This will be harder to discover by the HMRC because there will be nothing written down.
Unauthorised deductions from wages
Look up 'unauthorised deductions from wages' and 'rules for making deductions from your pay'. Client should repay to employees all deductions made illegally.