COMPLIANCE
Salary sacrifice and the national minimum wage – sacrificing common sense?
Gary Henderson, national minimum wage (NMW) specialist at EY, discusses the relationship between salary sacrifice and the NMW, covering some potential issues
S alary sacrifice arrangements have a strange relationship with the NMW rules. An arrangement which should be straightforward and mutually beneficial for both employer and worker can instead be an area fraught with risk, confusion and non-compliance. Make no mistake, salary sacrifices are broadly beneficial. But try explaining that to the employer who has had to repay a worker who was earning £80,000 per annum on the surface – but was technically ‘underpaid’ the minimum wage because they chose to sacrifice so much of their salary to a pension. Unlike other areas enforced by HM Revenue and Customs (HMRC), where penalties and fines are dictated by an action being deliberate, concealed or not, NMW enforcement takes a more blanket approach. Penalties and public ‘naming and shaming’ apply for many breaches, regardless of how they come about. This is an area that’s been contested over the years by employers who have breached NMW legislation on a technicality, like pay reductions for salary sacrifices. It’s a point that has been brought forward in countless consultations and commissions over the years: why are employers penalised where the worker signs up and agrees to something they benefit from overall?
instances, waive financial penalties where it came to salary sacrifice NMW breaches. However, the government didn’t amend the regulations to deal directly with the issue, saying that it needed to maintain the integrity of the NMW rules by ensuring workers couldn’t accept pay below the minimum wage. Employers are in a precarious position where certain benefits and arrangements can, realistically, only be offered to workers on higher salaries. There’s a real danger of dividing workforces here, with the effects being felt not only financially, but in the administrative burden it presents. Surely the spirit of the NMW legislation is not to leave benefits only available for some, and not for those that the minimum wage is there to protect in the first place? This is just another nuance to the highly technical and often perplexing world of NMW. As an employer, you may have workers who request or insist on salary sacrificing amounts which take their pay below the legal minimum. Remember, even with the best of intentions, your main responsibility here is to ensure compliance with the stringent NMW legislation. Best practice is always to have measures and protocols in place to ensure no worker drops below NMW in any pay period, even if it means restricting a worker’s ability to salary sacrifice. n
How has the government addressed the issue? A government response to a consultation on salary sacrifice schemes in 2020 noted that more than half of those who responded said they were actually withdrawing or restricting schemes because of NMW requirements. The same response pointed out the majority of employers used salary sacrifice schemes in the first place as it gave an easier route to purchase benefits and deal with taxes more efficiently. The outcome of that consultation was for the government to improve minimum wage guidance, add context to its ‘naming and shaming’ scheme and, in certain “An arrangement which should be straightforward and mutually beneficial for both employer and worker can instead be an area fraught with risk, confusion and non-compliance”
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| Professional in Payroll, Pensions and Reward |
Issue 91 | June 2023
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