Last month, a number of high profile organisations were named in the government’s “naming and shaming” register because they failed to compensate staff who are required to wear particular types or colours of clothing.
The National Minimum Wage (NMW) Regulations are complicated, and it is easy to see why even the largest and most sophisticated employers make mistakes.
National minimum wage and deductions
All workers are entitled to receive the National Minimum Wage for their age. Generally, employers cannot make deductions if, in doing so, it brings a worker’s wage below the NMW.
If you require your staff to wear a uniform, you cannot ask them to pay for it (or contribute to the cost) if this will bring their NMW payments below the minimum rates.
You cannot get around this by, for example, deducting the costs of the uniform over several pay dates, even if these deductions do not result in the worker’s take home pay falling below the appropriate NMW in a particular period. This is because a uniform is considered to be for the employer’s own use and benefit, and you can only make deductions for the cost of providing it in the “pay reference period” in which the cost was incurred. The pay reference period relates to how often someone is paid, so for a worker paid weekly, their pay reference period is one week.
For example, an employer provides a branded t-shirt for use by its bar staff. The cost of the t-shirt is £10. It would not be able to make any deduction from its staff if they are paid the NMW. Even if its staff are paid at the NMW rate per hour plus 50 pence, the employer would not be able to deduct the cost of the t-shirt from the staff unless they worked over 20 hours during the pay reference period (20 hours x 50 pence = £10).
However, in some circumstances, employers can deduct the cost of providing a uniform from a worker’s salary at the end of their employment – even if this brings their pay below the relevant NMW. To do this, there must be a contractual provision in your worker’s contract that he/she agrees to return their uniform when their employment ends. If they fail to do so, you can at that stage deduct the cost of providing the uniform from their final salary.
Similarly, you must repay staff for the reasonable costs they incur in meeting your uniform policy if this brings their NMW payments below the minimum rates.
What constitutes a uniform?
The HMRC NMW manual provides guidance on uniforms. It differentiates between “required uniforms” and “optional uniforms.
” Required uniform
These are items of clothing employers
require their staff to wear and will include branded uniforms, overalls, or special footwear. HMRC state that where an employer expects the worker to purchase specific items then any deductions made from their pay or payments made to the employer in respect of those items will always reduce National Minimum Wage pay.
If a worker makes a payment to a third party (such as a shop or online retailer) for required items of clothing, the payment will also reduce National Minimum Wage pay since it is, “expenditure incurred in connection with the worker’s employment.
” Optional uniforms
However, where a uniform is not required, or where a worker freely chooses to pay for additional items of uniform (over and above the dress requirements of the employment), any payment to the employer or a third party will not reduce national minimum wage pay.
The worker can also arrange to purchase optional items from a third party and ask their employer to deduct the cost from their pay and pay the third party on their behalf. The deduction will
not reduce the worker’s national minimum wage pay. Casual uniform policies
It is common for staff in some sectors (particularly hospitality) to be asked to wear trousers of a particular colour or type which the worker is expected to provide, or to purchase clothing from the range being sold by the employer. This amounts to a “required” uniform and will be subject to the same rules as those that apply to formal uniform policies.
What should employers do now?
If you require staff to comply with a casual uniform policy, you must now put in place systems to make sure that your staff are not underpaid.
Providing a uniform for the worker to use during their employment and requiring its return when their employment comes to an end
Reimbursing a worker for the reasonable cost of buying clothing necessary to comply with the policy. What is “reasonable” will depend on the item of clothing. For example, if your policy requires black jeans or trousers, you can limit the amount you will reimburse the worker to reflect the cost of suitable non-branded jeans.
You can ask for proof of purchase before reimbursing the worker. However, delaying payment on the basis that no receipt has been provided does pose some risk, as the repayment must be made in the relevant pay reference period which could be a week. If you reimburse the worker in a different pay reference period (for example, the following week), he/she will still have been underpaid NMW.
Providing a clothing allowance.
Removing the requirement for staff to wear a uniform and/or particular clothes.
Increasing the hourly rate of pay to avoid uniform deductions resulting in underpayments of NMW.
If you elect option 1 or 2, the contract between you and your workers should agree that the uniform/purchased clothing will belong to you and include provision for it to be returned when their employment ends. This will enable you to deduct the cost of the item on termination – although for longer serving employees you may not wish to enforce this.
Casual/zero hours workers
These rules apply to casual staff even if they only work “every now and then.” Therefore, if a casual member of staff purchases a pair of trousers to meet your uniform policy he/she is technically entitled to be reimbursed for the reasonable cost of these – even if they only work for a few shifts. This could result in employers being seriously out of pocket unless they have a contractual agreement in place to deduct the cost of this from their final pay.
What if staff already have items of clothing that meet the employer’s uniform policy?
This is a grey area. The restrictions on making deductions only appear to apply in respect of “expenditure” made by the worker in connection with their employment. This suggests that if a worker chooses to wear their own clothes, rather than purchase new ones, you do not have to contribute to the costs of purchasing these – at least not until they wear out and have to be replaced.
We recommend that staff who do this are notified (perhaps in a staff handbook) that they are entitled to be reimbursed for the cost of any items of clothing they need to purchase subject to the restrictions set out in the policy (such as proof of payment etc. or proof that such a purchase was necessary). Longer serving staff should probably be provided with a reasonable allowance.
There are no reported cases on this and, unfortunately, the reasons why employers were named and shamed was largely because their uniform policies do not comply with the NMW and have not been made public. Wagamama did make a statement following “mistakes” it made in relation to its uniform policy which suggested that they didn’t realise that requiring staff to wear casual black jeans or a skirt amounted to a uniform policy and therefore did not make any payments to its staff to cover these costs.
How far back can claims go?
HMRC can recover arrears up to six years from the date of their investigation and can include the names of former workers in the Notice of Underpayment. Employers are required to keep records for a minimum period of three years.
If your uniform policy puts you at risk of having breached the NMW, you should take steps to reimburse staff for their expenditure (including former staff). Technically, this will still put you in breach of the NMW Regulations (because of the requirement to make the payment in the pay period the expenditure was made) but it will, at least, demonstrate a genuine commitment to rectify a mistake.
HMRC will not serve a Notice of Underpayment in circumstances where all arrears have been paid before the start of any investigation. We would hope that they would not do so in these situations where the employer has taken steps to rectify the situation.
Published: April 2018
Employment Law Update - April 2018
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