14. Pay and the Minimum Wage

Pay and the Minimum Wage

Overview

  • Topic: Minimum Wage and Deductions from Wages

  • Course: Labour Law 2025

  • Lecture: 14

  • Instructor: Dr. Vera Pavlou

Intended Learning Outcomes

  • Students should demonstrate familiarity with:

    • The framework regulating employers’ power to deduct wages.

    • The statutory limits imposed on employers’ power to deduct wages.

    • The application of the statutory framework relating to the National Minimum Wage (NMW).

Wage/Work Bargain

  • Definition: The wage/work bargain is a core component of the employment contract.

    • It specifies:

    • The type of work.

    • The amount of payment, both of which are legally binding obligations.

  • Freedom of Contract: Indicates that employers have the liberty to establish payment systems, including:

    • Performance-related payment.

    • Time service contracts, which are the most commonly used system today.

  • General Principle: "No work, no pay"—a simple principle but complicates with partial fulfillment issues.

    • Complexities arise regarding fulfillment and partial fulfillment as noted in Collins et al (p. 252), including scenarios such as defective work.

Deductions from Wages

  • Common Law Framework: The contract of employment serves as the starting point.

    • Employers can deduct wages based on express and implied terms of the contract.

    • Performance-related pay allows an employer to withhold payment if work is incompletely performed.

    • Understanding of time service contracts is more complex.

Deductions in Time Service Contracts

  • Employee Obligation: Employees must be available for agreed working hours as per the wage/work bargain.

  • Employer’s Burden: The employer must prove the employee failed to work the agreed hours or complete assigned tasks.

  • Strike Actions: Employers retain the right to deduct wages for hours/days not worked due to strike actions.

Partial Fulfillment Scenarios

  • Scenario A: Employee attends work for only part of the agreed time.

    • The employer can either:

    • Deduct pay for the unworked time.

    • Refuse further work and withhold pay entirely.

    • Case Reference: Miles v Wakefield Metropolitan Borough Council [1987]—significant power for employers in instances of actions short of strikes (e.g., ASOS case).

  • Scenario B: Employee completes only core tasks but neglects specific contractual duties.

    • Case Reference: Wiluszynski v. Tower Hamlets London Borough Council [1989] ICR 493 CA.

    • Employers can refuse partial performance based on time/availability or work/duties.

  • Contractual Implications: Under common law, any refusal to perform duties, even small portions, can be counted as a repudiatory breach of contract.

Breach of Implied Terms by the Employee (I)

  • Performance-Related Pay Systems:

    • Employers may withhold wages based on the quality of performance.

    • Case Reference: Sagar v Ridehalgh & Sons Ltd [1931]—an oral contract with pay rates fixed by collective agreement allows wage deductions for work deemed defectively performed.

    • The court found employers not obligated to pay for defective items.

Breach of Implied Terms by the Employee (II)

  • Time-Service Contracts:

    • Generally do not specify quality expectations; however, several implied employee duties can justify deductions, including:

    • Taking reasonable care of the employer’s property.

    • Performing the contract in good faith.

    • Cooperating in work performance to achieve the employer's business goals.

Statutory Limits to Deductions

  • Reason for Limits: Enhances transparency surrounding wage deductions.

  • Key Provisions:

    • Section 8 of the Employment Rights Act (ERA) requires itemized pay statements.

    • Section 13 of ERA 1996 significantly limits employer's ability to deduct wages:

    • 1a) Deductions must be legally required or authorized either by legislation or contract.

    • 1b) The worker has given prior written consent for the deduction.

  • Enforcement:

    • Time limitation of 3 months for enforcement at Employment Tribunals (ET).

    • Burden on employers to provide proof of authorization.

    • Lack of state enforcement systems—claims must be initiated by victims similar to common law.

    • Employers must repay unlawfully deducted amounts within a limitation period of 2 years.

Definition of Wages

  • Broad Statutory Definition: Under Section 27(1) of the ERA, wages include:

    • Overtime payments.

    • Shift payments.

    • Meal and overnight allowances.

    • Recent developments concerning tips under the Employment (Allocation of Tips) Act 2023 mandate full allocation of tips to workers with a fairness and transparency policy.

    • Workers possess the right to access their tipping records.

    • Deduction concerning any of these components is classified as wage deduction.

Exceptions to Deductions

  • Specific Conditions under ERA Section 14 (1):

    • Section 13 does not apply if deductions are made for reimbursement of the employer regarding:

    • (a) Overpayments of wages.

    • (b) Overpayments related to expenses incurred by the worker while executing employment duties.

  • Strike Deductions: Section 13 does not apply to wage deductions regarding participation in a strike or other industrial action.

Employer's Duty to Provide Work

  • The wage/work bargain implies mutual obligations, but it does not necessarily include the employer’s duty to provide work.

  • Except in unique circumstances where an implied term may necessitate work provision:

    • Inquiry on whether the employer must pay if there's a lack of work—

    • In time-service contracts, employers must pay for employee availability.

    • Considerations for zero-hours and casual workers.

The National Minimum Wage (NMW)

  • Introduction: Under the UK National Minimum Wage Act 1998, first introduced in 1998.

  • Regulations: Bound by National Minimum Wage Regulations 1999 and 2015.

  • Arguments For and Against NMW Introduction:

    • Pros:

    • Establishes a protective minimum wage for disadvantaged workers.

    • Aims to alleviate poverty and serve as a benchmark for negotiating higher wages.

    • Cons:

    • Potential increase in unemployment.

    • Inflation risks (neoclassical economic perspective).

    • May lead to the minimum wage becoming the maximum wage, diminishing incentives for trade union membership.

Statutory Framework for NMW

  • Scope of Application:

    • Section 1(2) of NMWA 1998 extends broadly, but excludes specific categories:

    • Volunteers.

    • Prisoners.

    • Family members.

    • Previously excluded workers living in employer households were included after April 2024 per ET ruling and pressures from the Low Pay Commission and scholarly criticism.

Setting of NMW

  • Annual Review: Increases are established annually, taking effect in April.

    • The Secretary of State sets the NMW as per provisions in NMWA Section 2(1) and Section 3(2).

    • Recommendations are taken from the Low Pay Commission, comprising input from:

    • Employers.

    • Trade union representatives.

    • Academic experts.

Current and Projected NMW Rates (Effective April 2025)

  • Rates:

    • £12.21 for individuals 21 and over.

    • £10 for ages 18 to 20.

    • £7.55 for those under 18 and for apprentices.

Enforcement of NMW

  • Individual Enforcement:

    • Section 17 of NMWA 1998 establishes a contractual right to NMW, enforceable through an Employment Tribunal with a 3-month time limit.

    • The burden lies with the employer to validate compliance as evidenced in NMWA 1998 sections 28 and 49.

  • State/Administrative Enforcement:

    • Her Majesty's Revenue and Customs (HMRC) can conduct inspections.

    • HMRC can issue notices for underpayment and pursue payments legally on behalf of laborers in civil courts or ET.

    • Severe criminal penalties for employers who willfully fail to comply, including unlimited fines and public shaming ("name and shame").

Underpayment and Naming and Shaming

  • Common Reasons for Underpayment:

    • Type of Breaches:

    • Unlawful deductions for uniforms, training, admin costs.

    • Unpaid working hours.

    • Incorrect apprenticeship rate payments.

    • Outdated rates possibly due to misclassification as independent contractors instead of workers.

    • Resource allocation challenges affecting compliance.

Recent Case Law

  • Important Cases:

    • Royal Mencap Society (Respondent) v. Tomlinson-Blake, [2021] UKSC 8.

    • Key points on sleep-in shifts.

    • Time in app Uber case [2021] UKSC.

    • For critical commentary on these cases, see scholarly works by Hayes (2022 ILJ) and Ewing (2021 UKLLBlog).