In the Employment Appeal Tribunal (EAT) case of HMRC v Lees of Scotland Ltd [2024] EAT 120, a company that operated a voluntary savings scheme was found to have breached the National Minimum Wage (NMW) regulations, reversing an earlier decision by the Employment Tribunal.
The employer company, Lees, allowed staff to voluntarily make savings throughout the year by paying into a holiday fund. When staff made contributions, the money deducted from their wages resulted in their pay falling below the NMW rates.
- HMRC has long held that if savings club funds are held in a bank account that the employer can access and use, the employer receives a benefit from the scheme. They issued a notice of underpayment for Breach of the NMW rules.
- Lees appealed to the Employment Tribunal which found in its favour since the funds were not intended to be available for the employer's benefit.
- HMRC appealed to the Employment Appeal Tribunal (EAT).
The EAT found:
- The Employment Tribunal had asked the wrong question:
- It should have asked if Lees could use the holiday fund money without legal limitation whilst it was retained in the fund. The moneys were kept as part of Lees' business account and the company could benefit from the accrued interest. It could effectively use the funds.
- Regarding the repaying of contributions, the EAT also disagreed with the Employment Tribunal:
- The repayments did not reduce the company's liability to settle wage arrears for NMW purposes which must be paid at the NMW rate in force at the date the arrears were determined.
The EAT reversed the earlier decision by the Employment Tribunal.
Comment
It is all too easy for employers to overlook the rules on NMW. In this case, the EAT acknowledged that had the holiday fund been kept in a separate third party account there would have been no breach of NMW. Employers should review both arrangements in place for similar savings schemes and any other payroll deductions being made.
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Penalties: National Minimum Wage
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