Matthew Potter: What are the impacts from Iceland’s minimum wage non-compliance case?

Matthew Potter

According to the national minimum wage regulations, a salary sacrifice scheme that brings the gross pay of a salaried employee below the minimum wage threshold is technically a breach, attracting fines and a requirement to put employees back into the position they should have been in, had the sums not been deducted. This would still be the case, despite the employee having received the benefit of the salary sacrifice scheme. The question is: is this fair?

The announcement in January 2019 that retailer Iceland is being pursued by HM Revenue and Customs (HMRC) in respect of its staff Christmas savings scheme should alert employers that they may need to review what and how they pay employees, in case they are in breach of national minimum wage regulations.

Such deductions might be for a cycle-to-work scheme, childcare vouchers or a pension, to name but a few benefits offered by employers via salary sacrifice. There are, of course, potential savings to the employer in respect of their national insurance contributions, and to the employee in terms of reduced income tax and employee national insurance; a reason, no doubt, why HMRC are keen to investigate the position.

The government launched a consultation on 17 December 2018 in respect of national minimum wage and salary sacrifice schemes for salaried staff.

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Employers should respond to the consultation to have their voice heard; the risk is that employees on low pay will not be offered the same arrangements as those earning more than the national minimum wage, producing a two tier workforce. Lower paid employees could, therefore, be penalised in terms of benefits and salary.

Matthew Potter is employment law expert at Howes Percival