National Minimum Wage (NMW): Savings Club deductions tribunal decision

What the latest NMW tribunal decision could mean for companies who operate savings clubs

What the latest NMW tribunal decision could mean for companies who operate savings clubs

The employment tribunal accepted an appeal by Lees of Scotland Ltd against HMRC’s decision to collect NMW underpayments on employee savings club deductions. The tribunal determined that, in this case, the deductions do not reduce pay for NMW purposes. While not legally binding, this article sets out further details in relation to the case so that employers can consider whether the decision supports their own arrangements. HMRC have not yet commented on whether the appeal will influence their approach in other reviews; to date HMRC have sought to enforce underpayments and apply penalties and naming.

Why do voluntary savings schemes cause an NMW risk?

Many employers offer savings clubs to support employees to save. The arrangements are typically voluntary and the employee signs an agreement that a deduction from net pay will be retained by the employer with a promise to repay at a later date e.g. Christmas.

This type of arrangement is often offered as part of an employer’s financial wellbeing strategy. Employers typically administer the arrangements free of charge but may introduce rules in relation to when the savings can be withdrawn etc to reduce the administration burden of running the scheme.

HMRC’s view has been that, although voluntary, where the employer retains the funds in an employer bank account that allows the employer to use the funds, the employer is receiving a benefit from the scheme. HMRC therefore say that the deduction is being made for ‘the employer’s use and benefit’. There is a specific section of the legislation that causes NMW pay to be reduced where deductions from employee’s pay are made for the employer’s own use and benefit.

A number of large employers have been publicly named due to NMW underpayments arising due to these deductions.

What did the tribunal decide?


The tribunal has decided that in the case of Lees, the deductions do not reduce pay for NMW purposes.

This is on the basis that the deductions were not made for the use and benefit of Lees but the benefit of the employee – any benefits that the employer received such as interest payments and access to funds, were a consequence of the arrangement rather than the intention.

The tribunal stated that the intention of the arrangements is an important factor, and the intention of this particular scheme was to support employees to save.

What could happen next?

So far HMRC have not commented on how the case may influence their approach on this issue and the decision is not legally binding. 

We are supporting a number of employers to defend their schemes and welcome the decision which reflects our own views on this issue. If you operate a savings scheme or have any concerns about NMW risk please contact the authors, both of whom are specialists in the field of NMW, or your usual contact in KPMG in the UK. Our team of employment tax, legal and payroll experts can provide support on all aspects of NMW risk assessments, compliance, and remediation.