Staff uniforms - do you have a national minimum wage problem?
Staff uniforms - do you have a national minimum wage problem?
All workers must be paid the National Minimum Wage (NMW) rate appropriate for their age. In testing this, HMRC will look at all deductions from pay as well as costs that employees have to incur to perform their job.
If your policy requires staff to wear certain clothes and the employee has to incur costs in obtaining these items, HMRC will class the costs as a deduction when computing the wage the staff earn for NMW purposes.
What is a uniform
HMRC has for a long time used the ‘High Street’ test. That is, if someone was walking towards you, would you recognise they had a uniform on. However, the rules within NMW take it even further and class it as any clothing that is a condition of your employment. Therefore, this can catch policies that require staff to wear anything from business suits right down to policies that require staff to wear non-slip footwear.
HMRC has found its interpretation of the legislation to be fruitful, with many businesses (including some very big high street employers) having to reimburse staff millions of pounds as well as pay penalties, of up to 200% of the wages owed, to HMRC.
Optional uniforms
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 NMW 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. Such a deduction will not reduce the worker’s NMW pay.
However, if the employer already owns the clothing, and the employee asks for a deduction from their pay to purchase it, this would constitute a deduction from their pay for NMW purposes, as the money has gone to the employer.
How to avoid a breach
There are several ways to avoid breaching these regulations:
- Provide appropriate ‘uniform’ to employees free of charge
- Avoid any specific dress requirements
- Increase wages to meet the cost of uniform. The increase must be sufficient, as the cost of uniform is counted as a deduction in the first pay period, so if employees are paid monthly, the increase over the month must meet the cost, and this could result in a significant rise in wages if employees are paid weekly
- Include an extra uniform allowance in the first pay period to cover the cost. HMRC will typically look at uniform replacement periods so it may also be necessary to provide allowances in other pay periods depending on the circumstances
Protecting your organisation
All businesses should check their uniform and pay policies to ensure workers are not being underpaid.
In the majority of the cases that we come across in this area, the underpayment arises not due to deliberate intent, but because the employer was unaware of this rule. Often, we find supervisors, team leaders, etc will take their own initiative to try and instigate change with the right intentions, but unaware that their well-intended actions have unfortunate consequences for NMW purposes.
Communication and education activities with a range of stakeholders within the business and a strong policy suite with robust controls and processes are increasingly important to ensure compliance with NMW.
If you have any questions regarding your NMW position and require assistance, please do not hesitate to get in touch with Mike Hepburn, or your local expert:
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