During an employee’s employment, you may well pay for them to attend training courses. This involves an upfront investment in the employee, as you would not normally reap the benefits of the training until after it has been completed.
Employers often seek to protect this investment by asking an employee to agree that they will repay all or some of the costs of any training course if their employment ends within an agreed period following the completion of the course.
Employers can only protect this investment where they have a written contractual agreement to reclaim the payment from the employee. Employers will typically want to enforce this by having the right to make a deduction from the employee’s wages upon their departure.
A well-drafted provision will allow the employer to offset the amount owed against the wages the employee is due to receive in their final payroll, including any notice monies.
A recent case though has highlighted the minimum wage implications of making such a deduction. This is important as a failure to pay the minimum wage can result in a claim for unlawful deduction of wages in an employment tribunal as well as investigation and enforcement by HMRC, who have the right to name and shame employers who are caught not paying the minimum wage.
Calculating minimum wage
When assessing minimum wage compliance in a straightforward situation, it would involve taking the gross pay figure for that pay reference period and dividing it by the number of hours worked to arrive at an hourly rate. That hourly rate should be at least the applicable minimum wage.
Certain deductions from pay are always ignored for the purposes of calculating minimum wage compliance, such as pension contributions, tax and national insurance.
Regulation 13 deductions
Certain other deductions though are taken into account though, meaning that the employee must still be receiving at least the minimum wage in the relevant pay period after such deductions are taken into account. They include “deductions made as respects the worker's expenditure in connection with the employment (for example, for the purchase of tools or equipment or the cleaning or purchase of uniforms)” (reg 13).
HMRC v Ant Marketing
In this case the employer was telemarking business. New operatives were required to undertake a minimum of three days' paid induction training. Under their contracts, the operatives agreed to remain in the service of Ant for at least 12 months following completion of training.
If their contract terminated earlier for any reason other than redundancy the clause required them to repay training costs of £350 for training in excess of five days and £250 for courses of less than five days. There was a sliding scale of repayment, based on length of service after completion of the relevant course.
The EAT held that the deduction fell within regulation 13 and so was taken into account when calculating if the minimum wage had been paid.
The EAT stated that the training was mandatory and, if the employer sought to recover the cost of that training by means of a deduction during employment, there was no doubt that such a deduction would be caught by regulation 13. Such expenditure was the same as compulsory expenditure on tools needed to do the job.
The fact that the deduction is only made if the worker leaves within the first 12 months (except for a redundancy dismissal) does not change the position. The deduction is still in respect of expenditure on training, which cannot be anything other than "in connection with employment" given its mandatory nature.
The lesson here for employers is that when exercising a contractual right to deduct training fees from wages, make sure that the employee is still being paid at least the minimum wage for that pay reference period.
(Commissioners for HM Revenue and Customs v Ant Marketing Ltd UKEAT/0051/19)