Deductions for season tickets did not reduce pay for the purposes of National Minimum Wage (NMW) since they amounted to a payment for goods.
In Middlesbrough FC v HMRC, the Employment Tribunal ruled that employees were able to request and agree to deductions from their wages to pay for season tickets for family members over a number of weeks/months without these counting as reductions in pay for the purposes of the NMW Regulations.
Deductions from an employee’s pay made by an employer for ’their own use and benefit’ are treated as reductions in pay for the purpose of the NMW Regulations. Therefore, if these deductions reduce a worker’s pay to less than the NMW rate, their employer will be in breach of the NMW Regulations.
There are some exceptions to that general rule, including for payments made by a worker to buy goods and services from the employer, which Middlesbrough argued was the case here.
HMRC disagreed, and issued notices of underpayments on the basis that some of the club’s employees were paid less than the minimum wage after the agreed deductions for the cost of season tickets. Middlesbrough appealed the notices of underpayment to the Employment Tribunal.
Given the sums deducted from the employees were paid into Middlesbrough’s bank account and were generally available for it to use, the Tribunal found that the deductions in respect of the season tickets were necessarily for the ’employer’s use or benefit‘.
However, the Tribunal went on to find that the reductions amounted to payments in respect of a purchase from the club (i.e. a purchase of season tickets for family members) which fell within the wording of one of the exceptions.
It was clear that the employees were not required to purchase a season ticket, nor did this amount to a benefit in kind. Therefore, this reduction did not reduce the employees’ pay for the purposes of the NMW Regulations.
On this basis, Middlesbrough won its appeal against HMRC’s notices of underpayment.
This will be a welcome decision and support for employers who have similar schemes in which their employees can choose to participate.
However, it is important to note the following:
• The decision reached is not binding law (although it may well influence Tribunal decisions in future). Only an Employment Appeal Tribunal decision can bind Employment Tribunals. It will be interesting to see if HMRC appeal.
• The decision is fact specific relating to an exception about purchasing goods and services.
• In addition, the Tribunal Judge applied a purposive approach when interpreting the reductions for season tickets as ’payments’ rather than ’deductions’, in order for the arrangements to fall within the wording of the exception under the Regulation. This could well be challenged if HMRC were to appeal, and another Tribunal could reach a different decision under a different set of facts.
• Finally, the central decision that a payment into the club’s account was necessarily for their own use and benefit is not very helpful to employers on a more general basis.
How KPMG can help
KPMG’s expert employment legal and tax teams are experienced in dealing with all sorts of NMW advice. Please get in touch if you need help.
If you have any queries, please get in touch with your normal contact or e-mail firstname.lastname@example.org.
© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.