Lees of Scotland Ltd, the confectionery producer of teacakes, meringues and snowballs, has lost an Employment Appeal Tribunal decision in relation to National Minimum Wage (NMW).
Lees had provided workers with a voluntary holiday savings scheme over 30 years, it operated a “holiday fund”, where workers could choose to have a regular sum deducted from their wages and paid into the fund.
NMW is the legal minimum pay to be received by an employee. Deductions from employee pay for the company’s “own use and benefit” will reduce pay for NMW purposes. The issue in play was whether the holiday fund, which was stored in the Lees’ business account, was a deduction for the company’s “own use and benefit”.
The Employment Tribunal held that it was not, as the “sole purpose and intention of the deduction” was to ensure the workers had sums set aside when they required them.
The Employment Appeal Tribunal disagreed, finding that:
- The intention of the deduction is irrelevant.
- The relevant question is whether the money could be spent by the employer. As the money was held in company accounts, it could have been spent on other purposes – despite no intention to do so.
- If there is no legal limitation on the way that the employer can use the money paid or deducted, it will be for its own use and benefit
Outcome
Lees will pay employees who fell under NMW the difference in pay, despite the employees receiving the money from the savings scheme. Effectively, Lees will have paid the holiday scheme money twice, once annually when the savings scheme returned the funds, and now a second time to make up the ‘shortfall’
Implications
As this case is Scottish, it will only affect employees falling under Scottish Law. However, English law is effectively identical and formed part of the reasoning for this decision.
If you are operating a scheme in which deductions are taken from pay and stored in company accounts, no matter the purpose or intention, you are at serious risk of NMW breach. Please reach out to the PALS team and we can help.