Employers offering salary sacrifice: beware impact of proposed National Living Wage.
Following the Government’s announcement last week that it will take measures to ensure that both the National Minimum Wage (NMW) and the National Living Wage (NLW) are actually paid by employers, Jelf Employee Benefits is warning employers to look out for the potential pitfalls if they utilise Salary Sacrifice.
Employers who utilise Salary Sacrifice need to be aware that the ‘sacrifice’ has the potential to reduce an employee’s income below the appropriate minimum level for that individual. And the HMRC website clearly states: “A salary sacrifice arrangement can’t reduce an employee’s cash earnings below the National Minimum Wage rates.” Utilising Salary Sacrifice to support employee benefits is now such a common occurrence that there was a warning within the Summer Budget that the Treasury is monitoring the situation to ensure the loss to the exchequer does not get out of hand.
Most organisations are aware that this minimum cannot be breached, but Jelf warns that many companies may not contemplate the combined impact of several sacrifices together. For instance a sacrifice for childcare vouchers may leave the employee seemingly well above the NMW minimum line, but another additional sacrifice for other benefits, such as pensions, might cumulatively drop the employee (and employer) into the red zone. Steve Herbert, head of benefits strategy for Jelf Employee Benefits says: “As yet it is unclear whether this same dynamic will also apply to the new National Living Wage, but I believe it would be surprising if it didn’t. Employers will have to be vigilant to avoid any inadvertent breach. The bottom line is that they must ensure they comply with the new minimum wage landscape, and, as such, an early review of the employee benefits offering would be prudent.
“We’re urging employers not to take this lightly: the announcement also includes details of some of the penalties that have been handed out for past breaches of this law.” Jelf also points out that as many employee benefits are directly linked to salary: pension contributions, life cover, income protection etc, it follows that the cost of such benefits may increase for the employer (and sometimes the employee) from April 2016. Employers in business sectors with relatively low pay (for instance hospitality) may well need to factor in not only a higher minimum income level, but also a bigger spend on connected employee benefits as well.
