REWARD INSIGHT
Training agreements and NMW
Danny Done, managing director at Portfolio Payroll, discussed the implications of the decision in a recent case
E mployers often provide training to new staff with the aim that those employees will then carry out work for them immediately after the training is completed. Unfortunately for employers that does not always happen and some employees leave during or shortly after they have received the training. This leaves employers in an unfavourable position: they have spent time, money and effort training an employee and instead they are left with a job vacancy. Training agreements can be useful in situations like this as they can include a clause which allows the employer to recover the costs for the training. It is not unusual for employers to require staff to pay back their training costs, especially if it involved gaining some professional qualifications recognised outside of the business which usually attract a cost from the accreditation body. When providing training, it is important to ensure that a valid agreement is created before any training takes place. If there is no agreement or if it is unenforceable, and the employer goes ahead to recoup its costs, they could face a claim for unlawful deduction from wages. A training agreement is usually in the form of a sliding time scale where the amount the employee will have to repay depends on how long they have worked for the business after the training is completed. For example, if they leave immediately after the training they may have to repay the full amount; however, if they leave one year after the training they may only be changed 50% of the training costs. It is best to have a written training agreement signed by both the employee and employer, which can be part of the employment contract or contained in a
separate document which forms part of the terms and conditions of employment. Employers should make sure that the agreement is entered into before training begins and that it states a particular sum which will become payable in the event of the employee leaving within a specified period of time. Although sometimes the cost of in-house training may be hard to estimate, employers should attempt to set a proportionate sum for the training they are offering. ...allow for an employee’s wages to be taken below the NMW level The long-standing position of HM Revenue & Customs (HMRC) has been that money deducted for the purpose of recouping costs incurred for training staff on topics that help them do their job, cannot take the employee’s wages below the national minimum wage (NMW) rate per hour worked for that pay reference period. The result of this was that employers were unable to recover all monies that they have spent to provide training, even where a valid training agreement had been signed. In cases where the employee receives the national minimum wage rate, it meant that the employer could not recoup any monies. However, an Employment Appeal Tribunal (EAT) judgment ruled contrary to the stance HMRC was taking. In the case of Commissioners for Revenue and Customs v Lorne Stewart PLC the EAT held that relevant NMW regulations state that deductions “in respect of conduct of the worker, or any other event, in respect of which he ... is contractually liable” allow
for an employee’s wages to be taken below the NMW level. The EAT looked at the meaning of “any other event” and concluded that it does not necessarily relate to an employee’s misconduct but merely conduct in general. This can be taken to mean that an employee’s voluntary resignation will come under this description. This piece of case law set the precedent that recovering monies an employer has spent on providing or arranging training for a member of staff can take the employee’s wages below the NMW, as long as there is a valid training agreement and the employee is responsible for the conduct which has brought the training arrangement to an end. Employers should note that whilst voluntary resignation can warrant reducing the pay below NMW, a situation such as a redundancy does not as it does not depend on the employee’s conduct. This principle can be extended to conduct dismissals, too. Where an employer is dismissing an employee due to their misconduct, they can make deductions which take pay below the NMW. Employers should be wary about applying this principle to capability dismissals, as this area has not been tested at tribunal and there may be a risk of a NMW claim from the employee and a notice of underpayment following an HMRC inspection. If the employee receives a rate of pay above the NMW and if that stays that way even after the deductions have been made, then the employer is not under any risk of breaching NMW legislation. This principle naturally applies to both the NMW and the national living wage, in operation since April 2016. n
| Professional in Payroll, Pensions and Reward | September 2016 | Issue 23 46
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