National Minimum Wage and Recovery of Training Fees
It is well established law that an employee should be paid at least the National Minimum Wage (NMW).When determining whether or not an employee has received the NMW, certain payments and deductions must be taken into account when calculating the employee’s average hourly rate of pay, which should be equal to, or more than, the prevailing NMW rate (see Information Update 2015/01).
An issue before the courts recently was whether a deduction from an employee’s final salary payment, in accordance with a separate Training Fees Agreement, was permissible. This effectively meant that the employee was being paid less than the NMW in the reference period.
In this case, the employer agreed to fund training courses providing the employees signed a Training Fees Agreement to repay some or all of the cost if they left within 2 years. The employee resigned and left within 2 years and the employer made a deduction from the employee’s final salary in accordance with the terms of the Training Fee Agreement which meant that for the final reference period, the employee was effectively paid less than the NMW.
HMRC issued a Notice of Underpayment, which the employer appealed.
The issue was whether the money deducted came within regulation 33(a) of the National Minimum Wage Regulations 1999 and in particular whether the liability to repay was "in respect of conduct of the worker, or any other event, in respect of which he is contractually liable".
The Employment Tribunal found that regulation 33(a) did apply and therefore allowed the employer’s appeal against the HMRC Notice of Underpayment. HMRC appealed to the Employment Appeal Tribunal (EAT).
The EAT held, a voluntary resignation or damage to property for which the worker is responsible would come within the concept of "any other event". Consequently, in the current case, because the employee resigned, the employer was entitled to deduct monies due in accordance with the Training Fees Agreement even though it would take the employee below the NMW in the reference period. However, the EAT did say that it would not be the case if the employer was dismissing the employee by reason of redundancy or potentially in the case of ill health dismissals for which the worker could not be said to be responsible.
What does this mean?
When calculating an employee’s final payment, where there is a Training Fees Agreement in place; and you are seeking to deduct monies under the terms of that Agreement from any final salary payment: you should seek legal advice. Whether a deduction can be made will be dependent upon the reason for termination and whether such a deduction would take the employee below the prevailing NMW.
If a deduction cannot be made from the employee’s final pay, it means that you would need to request payment from the employee and hope they pay it! The alternative will be to commence proceedings in the courts to recover those costs – whether that is commercially viable to pursue will be dependent upon the amounts involved and whether the employee is likely to have the monies to pay any court judgment obtained!