06.04.17 Deduction for administration charge for operating an Attachment of Earnings Order must not infringe NMW

Employers are sometimes instructed to make deductions from an employee’s pay and pay the amount deducted across to a third party.

The instruction may be in the form of;

• An Attachment of Earnings Order (AEO) from the courts; or
• A Deduction of Earnings Order (DEO) from the Department for Work and Pensions

Employers are allowed to make a deduction of £1 from the employee’s wages to cover their administration cost for the process.  Historically, the guidance on operating the orders instructed employers that they could charge the administration fee but failed to notify them that the £1 administration fee could cause a breach of the National Minimum Wage (NMW) because it is considered to be a deduction for the use and benefit of the employer.  This led to some employers falling foul of the NMW Regulations.

Gov.uk have updated their guidance to include the National Minimum Wage ‘NMW’ stipulation when an employer receives an “attachment of earnings order (AEO)” for an employee. In the updated guidance, HMRC have clarified that the £1 administration charge can be deducted regardless of whether it takes their pay below their protected earnings rate but it must not take the employee’s pay below the NMW.

This is a link to the Gov.uk guidance.

Aspire Comment

Protection of the NMW or the National Living Wage (NLW) should be a key consideration for all employers.  Due care needs to be taken to consider the NMW/NLW implications of any deduction from pay.   

The risk of a HMRC investigation, a hefty liability or inclusion on the naming and shaming list, is too significant to ignore.

If you have any concerns regarding NMW or NLW then please give one of the Aspire team a call to discuss how we can assist.