An important reminder… the National Living Wage

We would like to think that all followers of this blog are now fully aware of – and conversant with – the new National Living Wage (NLW) requirements which come into force in April this year.

The purpose of this post is not therefore to remind our followers to comply with this new edict – because failure to do so is just not an option. Yet we do think it worth again highlighting a hidden “nasty” which we suspect many employers may still be overlooking even at this late stage of planning.

The issue is the use of salary sacrifice for employee benefits provision – and it’s interaction with the new National Living Wage.  The NLW is effectively just another tier (for workers over age 25) of the already existing National Minimum Wage (NMW) structure – and as such the following quote from the HM Revenue & Customs section of the government website also applies to the NLW: “A salary sacrifice arrangement can’t reduce an employee’s cash earnings below the National Minimum Wage rates.”

Given that the NLW is some 50p per hour higher than the existing NMW, it is likely that many more employers may now need to ensure that no employee is inadvertently breaching the new limits as a result of an existing salary sacrifice agreement.

This would be a particular concern where more than one employee benefit is offered to employees using the salary sacrifice mechanism. It is quite common for employees to have several sacrifices running concurrently (for instance a pension contribution and childcare vouchers) – and the cumulative impact of the two sacrifices could well result in the hourly income dropping below the new legal minimum.

So we would urge employers to actively review this issue before April. In particular we would suggest that employers review the following groupings:

  • Any individuals with a particularly large sacrifice agreement in place
  • Any individual with more than one concurrent use of salary sacrifice
  • Any individual using salary sacrifice and earning less than (say) £9.00 per hour.

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Undertaking such a simple policy could help avoid any inadvertent breech of the rules this year – and the experience may also prove useful if a similar check is needed in future years when the NLW/ NMW increase again.

For the full original article and other similar posts, please visit the Jelf Group blog.