The Cordant Group, which employs 30,000 staff in the UK and Ireland, has lost a case in which it challenged business secretary Vince Cable over the 2011 amendment to the national minimum wage regulations.
On 1 January, the government amended the national minimum wage regulations, preventing employers from treating travel expenses as part of the wage paid to staff.
The amendment was first announced in July 2010. At the time, the government stated it had weighed up “responses to the recent consultation on travel and subsistence schemes implemented for some temporary workers paid at or near the national minimum wage. The government has carefully considered the responses and has concluded that, on balance, action should be taken. It will amend the national minimum wage (NMW) regulations to take effect from 1 January 2011”.
Cordant Group challenged the business secretary over the amendment, which now provides that any payments to staff in respect of travelling expenses under section 338 of the Income Tax (Earnings and Pensions) Act 2003, cannot count as part of the minimum wage.
Giving judgment in the case, Justice Kenneth Parker described the challenge to the amendment as “an attack on the economic merits of regulatory reform affecting the labour market in the guise of a common law and legal equality case”.
He said Cordant operated a scheme where every job given to an employee was regarded as being at a temporary workplace, so tax and national insurance relief did apply to travel costs.
Under a salary sacrifice scheme, Cordant’s staff were paid a sum for travel and subsistence expenses, having agreed in advance to sacrifice part of their wage. When added to the reduced salary, after tax, the total amount received was slightly higher than it would otherwise have been.
Justice Parker said organisations that operated such schemes could benefit substantially through lower national insurance and salary costs. He added: “The evidence strongly suggests low-paid workers currently benefit only to a relatively small extent under salary sacrifice schemes. If employers, such as the claimant, do not wish their workers to suffer a small reduction in net pay as a result of the amendment, the solution lies in their hands.
“With or without salary sacrifice arrangements, the employer remains free to pay a modest increment to lower-paid workers, by way of income tax and NIC-free section 338 expenses, and the worker would suffer no detriment.”
A spokesman for the Department of Business, Innovation and Skills said, following the judgment, that it was “wrong in principle” for employers to make a profit from low-paid workers through salary sacrifice schemes.
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