What counts as national minimum wage pay - how to treat deductions from pay and payments made by a worker
Making sure that deductions are lawful
You cannot make any deductions from a worker's pay or take a payment from a worker unless certain conditions are met. For more information, see our guide on pay - an overview of obligations.
However, note that even if you have a worker's agreement to a deduction or payment, this does not mean that it can be automatically disregarded in working out national minimum wage (NMW) pay. You cannot make any deduction or take a payment that reduces a worker's pay below NMW rates, even if you have their permission to do so.
The fact that a type of deduction or payment is identified in this guide as not reducing NMW pay does not mean that it is lawful to make the deduction or receive the payment. It must still meet the required conditions.
Deduction of income tax and National Insurance contributions (NICs)
National minimum wage (NMW) is calculated on gross pay before Income Tax and National Insurance contributions are deducted. Deductions for income tax and NIcs do not reduce NMW pay.
Deduction from pay or payment by the worker of a penalty
If you deduct a sum from a worker's pay because of some event related to misconduct, where you are permitted to make the deduction under the terms of the worker's contract, the amount does not reduce NMW pay.
Similarly, if a worker pays you an amount because of some event related to misconduct, the amount does not reduce NMW pay provided he is contractually liable for the payment.
Deduction from pay or payment by the worker of an advance of wages
If you have provided an advance of wages and subsequently deduct a sum for repayment of all (or part of) the advance of wages, the deduction does not reduce NMW pay in the pay reference period in which it is made.
Similarly, if a worker pays you an amount in respect of repayment of an advance of wages, the payment will not reduce NMW pay. See our example of how to treat an advance of wages - Opens in a new window.
Deduction from pay or payment from the worker for purchase of shares or securities by the worker
A worker who buys shares or securities in their firm may want to purchase them by having a deduction made from their pay. If you deduct the purchase price from the worker's pay, the deduction does not reduce the worker's NMW pay. A payment made by the worker for the purchase will not reduce NMW pay.
Deduction from pay or payment from the worker to recover an accidental overpayment of wages
If you find you have accidentally overpaid a worker and then make a deduction from the worker's pay to recover the overpayment, or the worker makes a payment to you, neither the deduction nor the payment reduce NMW pay.
Deductions from pay that are not for expenditure connected to the worker's employment or for the employer's own use or benefit
A worker may want to have other sums deducted from their pay that they are liable to pay themselves, eg their own union subscription or pension contribution. Such deductions from wages do not reduce NMW pay, so long as the amounts are not required expenditure in connection with the worker's employment or for the employer's own use or benefit.
Any deductions you make for goods and services which are for your own use or benefit, eg a deduction for meals or transport you are providing, cannot be counted towards NMW pay. It is immaterial whether or not the worker has the option of using the goods or services. You do not have to make a profit from such deductions for them to be 'for your own use and benefit'. If you provide transport at a loss, for instance, any deductions from wages which you make for providing it will have helped to reduce your loss. The reduction of your loss is part of 'the use and benefit' which you will have had from the deductions.
Payments from the worker that are for the purchase of goods and services from the employer
Workers can make a payment for the purchase of goods and services from you without the amount reducing the calculation of NMW pay, as long as they are not doing so to comply with a requirement in their contract or any other requirement which you have imposed on them in connection with their employment.
For example, if a worker receives their wages and then pays you for the cost of meals they have freely chosen to purchased in the staff canteen, the amount paid will not reduce the calculation of NMW pay.
If you provide living accommodation to a worker, your options are to:
- provide the accommodation for free
- deduct an amount of rent from the worker's pay
- charge the worker rent for the accommodation
Special rules apply in these circumstances, which are explained in the page in this guide on benefits in kind and accommodation.
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