Middlesbrough Football Club's arrangements with low paid employees to spread the cost of football season tickets did not breach national minimum wage (NMW) rules, the employment tribunal has decided.
The football club did not have a formal scheme enabling employees to purchase season tickets for their family by instalments, but agreed to a request from a few low paid employees in clerical or hospitality roles for the cost of a season ticket to be spread over a number of weeks and for the cost to be deducted from their wages.
UK tax authority HM Revenue & Customs (HMRC) argued that this was a breach of NMW rules because the deductions caused the employees' wages to fall below the NMW rate.
"HMRC take a very tough stance on the National Minimum Wage, seemingly drawing no distinction between technical breaches arising from uncertainty in the law and its application and deliberate underpayments," said Steven Porter, a tax disputes expert at Pinsent Masons, the law firm behind Out-law.com.
Employers can be fined up to 200% of arrears for NMW breaches, and may face criminal prosecution in some circumstances. Employers in breach of the regulations will also be 'named and shamed' by HMRC.
The number of investigations opened by HMRC into employers over potential breaches of the NMW increased 43% to 3,975 for the year ending 31 March 2018, up from 2,775 in 2016/17.
Deductions from wages made by the employer "for the employer’s own use and benefit" are treated as reductions in earnings for NMW purposes, unless one of a small number of exceptions applies. One of these exceptions covers "payments as respect the purchase by the worker of goods or services from the employer unless the purchase is made in order to comply with a requirement imposed by the employer in connection with the workers employment.”
HMRC argued that the amounts deducted from the wages by Middlesbrough football club were for the club's use and benefit and that they were "deductions" and not "payments" and so were not covered by the exception. HMRC relied on a comment by Mr Justice Elias in the employment appeal tribunal in a case concerning Lorne Stewart plc. He said: "A deduction is to be contrasted with a payment by the employee which is a situation arising where the money is initially paid over by the employer to the employee but is then paid back to the employer, the distinction simply focuses on the mechanism whereby the money is received".
The employment tribunal judge decided that as the payments deducted from the wages went into the football club's general bank account, they were generally available for the club's use and benefit. "It seems clear to me the fact that the [football club] could use the money to pay any debts owed to it meant not only it had the use of the money but also it also benefited from the use of the money," she said.
Applying a purposive approach the judge said that the season ticket amounts were not a benefit in kind which the legislation was designed to prevent as they were purchased for family members. She decided that the deductions did not breach NMW rules.
Pinsent Masons employment law expert Jon Fisher said: “It is slightly surprising that Middlesbrough’s challenge succeeded on the ground that it did, in that their other grounds appeared stronger. However, the outcome is clearly right. The arrangement which Middlesbrough had in place benefited employees and withdrawing the benefit would leave employees worse off. That is not what the National Minimum Wage legislation was designed to achieve."
Middlesbrough's victory in the employment tribunal was reported in the press in February, but the tribunal's judgement has only just been published.
Press reports also suggest that HMRC has alleged that Iceland Foods has been underpaying its staff under NMW laws due to the way that the company operates a Christmas savings scheme offered to employees. The savings scheme allows employees to put aside money from their weekly pay packets which can be reclaimed on demand.
"No doubt Iceland and other employers will now rely on the Middlesbrough decision to assist their challenges to HMRC’s approach to equivalent arrangements," Jon Fisher said.
A consultation on possible changes to NMW rules for salaried workers and the operation of salary sacrifice schemes closed on 1 March 2019. The consultation asked if there were areas where they felt NMW rules penalised employers without generating benefit or protection for workers.
Fisher said: "Hopefully the common sense approach shown in the Middlesbrough decision will also be reflected in the government’s response to the recent consultation on changing NMW legislation, shifting the focus onto employers who are flouting the rules rather than employers who have inadvertently misinterpreted the current complexities."
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