COMPLIANCE
“For those unaware, you can’t reduce a worker’s salary
entirety, looking at what concerns payroll professionals had about the future of the NMW. Unsurprisingly, a main area of concern for attendees was the dramatic increases in NMW rates over the past few years. With the previous remit of reaching two-thirds of median hourly earnings, the LPC had made recommendations that increased rates by as much as 21% for some bands. This has put pressure on budgets for employment and pay differentials between different staffing levels. The commissioners were keen to understand how companies keep on top of wage projections to anticipate NMW rises in future. The replies were mixed, with some employers being more involved in future projections than others. What received common consensus was the desire from companies to have a period where the NMW rates didn’t rise so sharply to allow time for businesses to build up differences in their pay scales again and avoid any unwanted labour market issues. This looked like it was on the cards, with the remit provided by the last Conservative government being to maintain the NLW at two-thirds of median hourly income. However, with the new Labour remit, it stands to reason that we will see another sharp rise as the input factors have changed. You may wish to look at your internal budgets and account for this now. A potential area you could consider is the “What received common consensus was the desire from companies to have a period where the NMW rates didn’t rise so sharply to allow time for businesses to build up differences in their pay scales again and avoid
differences between the current NLW and the Living Wage Foundation’s real living wage, which does consider the actual cost of living for its voluntary rate. A small concern that could present itself here is that companies already struggled to understand where they can find information on what “two-thirds of median hourly earnings” means. With added steps and complication to understanding what future NMW rates could be, how will employers keep up? Clarity and transparency will be key here, from both government and the LPC. Age bands Another pressure employers are seeing are the constricting of the age bands. On top of the large increases to the NLW, this year we also saw the age that this rate applies to reduce from 23 and over to 21 and over. This has caused businesses with large amounts of young workers to see a double hit of increases to their budgets. Some think tank attendees indicated they don’t make use of these bands, instead using the NLW as the baseline for their salary decision, regardless of age. These companies may be less impacted by the announcement that Labour intends to get rid of all the age bands over 18 years old; however, this will likely be consulted on to establish the best way to roll this out without having impacts on the labour market and the employment prospects of younger people. Salary sacrifice A recurring theme in this discussion, as well as in previous years, was the impact of salary sacrifice and its interaction with NMW. This is why this year, the LPC asked us to facilitate a second session specifically looking into this issue and what concerns our members had along with any remedies employers have implemented. For those unaware, you can’t reduce a worker’s salary below NMW levels and reductions for salary sacrifice can cause minimum wage breaches, regardless of the benefit being provided. With pay differentials being squeezed, what employers are seeing are employees who previously could salary sacrifice a portion of their pay for a benefit – the common example being pension contributions – no longer able to for risk of breaking NMW compliance. For pension contributions, this is particularly concerning
and causing payroll professionals to have difficult conversations with employees. When a worker needs to be removed form a salary sacrifice pension scheme and placed in a relief at source or net pay arrangement scheme, they will receive the same pension contributions but may end up with less take home pay, through no fault of their own. Our members shared their experiences and concerns with the LPC commissioners, and this is something the CIPP will continue to press on. While this area isn’t something covered in the current remit, it’s good to see the LPC exploring issues in relation to NMW and being open to opinions and ideas. The exact solution is unclear, but it seems unfair to penalise individuals who wish to save for retirement but are also low paid. Future plans So far, we haven’t received a response from the LPC regarding future plans, but with the change in remit we may have to wait a while further as it realigns its goals. The Labour government has asked for a reply regarding its new remit by October 2024 in anticipation of April 2025 rates being decided, and we may even see this in the budget set for 30 October 2024. We’ll keep an eye on the situation and update the payroll profession when we have more information on the 2025 rates. CIPP members can read our consultation response on the website here: https://ow.ly/nyRi50T0Rla, along with other consultations and calls for evidence the policy team has completed. n below NMW levels and reductions for salary sacrifice can cause minimum wage breaches, regardless of the benefit being provided”
any unwanted labour market issues”
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| Professional in Payroll, Pensions and Reward |
Issue 104 | October 2024
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