Minimum Wage – Deductions from Pay

June 9, 2020

Commissioners for HM Revenue and Customs v Middlesbrough Football and Athletic Company (1986) Ltd [2020] All ER (D) 201 (Mar), UKEAT/0234/19/LA.

By George Rowell

HMRC successfully appealed against an employment tribunal decision which had allowed Middlesbrough FC to make payroll deductions that took its employees’ pay below the national minimum wage (“NMW”). The deductions were used to purchase football season tickets from the club.

The NMW rules allow “payments” by the worker for the employer’s goods and services to count towards reckonable pay. The main issue was whether this rule extends to deductions made at source. The Employment Appeal Tribunal held that it does not. The legislation deliberately contrasts payments and deductions, and permits only the former. And the NMW’s policy of protecting low-paid employees is best served by ensuring that their pay actually reaches their pockets.

The EAT’s decision is important because it clarifies an area of law which was thrown into confusion by the employment tribunal’s decision last year. It is now clear that deductions at source to buy the employer’s products do not count towards NMW reckonable pay. The EAT also gave guidance on the rules relating to deductions for “conduct or any other event” and to repay a “loan or advance of wages”, neither of which was applicable to the deductions made by the club.

What the Employment Appeal Tribunal Decided

Middlesbrough Football and Athletic Company (1986) Ltd (“the Club”) operated a payroll deduction arrangement allowing its employees to agree to buy football season tickets by instalments. In some cases these deductions took the pay received by employee below the national minimum wage (“NMW”). HMRC therefore issued enforcement notices requiring the Club to make up the shortfall of wages and pay statutory penalties.

In March 2019 the Club successfully challenged the notices in the Middlesbrough employment tribunal (“the tribunal”). The tribunal found that the deductions amounted to “payments as respects the purchase by the worker of goods or services from the employer”, which is one of five reductions in reckonable pay allowed by regulation 12(2)(a)-(e) of the NMW Regulations 2015.

HMRC successfully appealed against this decision to the EAT. The main issue was whether a deduction made at source by the employer, and kept in the employer’s bank account for its own use, met the statutory definition of payment [for] purchase of… services.” The EAT held that it did not. The legislation deliberately contrasted payments and deductions, and permitted only the former. Applying previous case law, this interpretation was necessary to ensure that the wages of low-paid workers actually reached their pockets and they were therefore more likely to make a genuine choice as to whether to make a purchase from their employer or not.

Contrary to the Club’s contention, it was not appropriate to import the very broad definition of “payment” in the PAYE legislation. This definition had been adopted to prevent tax avoidance, whereas the purposes of the NMW legislation were better served by the narrower definition mentioned above.

The Club ran three alternative arguments for upholding the tribunal’s decision. These were all rejected by the EAT. It held that the payroll deductions were for the employer’s “own use and benefit” (reg. 12(1)); the deductions were not “in respect of the worker’s conduct, or any other event” (reg. 12(a)); nor were they made on account of a “loan” or “advance of wages” (reg. 12(2)(b)). Finally, the EAT rejected the Club’s argument that new guidance issued by the Secretary of State in February 2020 supported its position.


The EAT’s judgment brings a welcome clarification to an area of law which was thrown into confusion by the decision of the Middlesbrough employment tribunal last year. It upholds the fundamental principle that employers are responsible for complying with the minimum wage rules and are barred from contracting out of them except in very limited circumstances. Payroll deductions which take reckonable pay below the minimum wage are allowed only within clearly defined statutory exceptions, which do not include schemes to buy the employer’s products.

Where NMW compliance is concerned, it is now clear that the law requires the money to reach the employee’s pocket before it may be used to make a purchase from the employer. As the EAT held, this approach serves the minimum wage’s purpose of protecting low-paid employees and avoids the need for extensive investigations as to whether the employee exercised a genuine choice about making the purchase or not.

George Rowell represented HMRC in the employment tribunal and EAT.