Salary sacrifice and the minimum wage

Further to our recent article on the National Minimum Wage (NMW) increases on 7 March 2024 – read here, we now look at salary sacrifice schemes and how these can unintentionally lead to employers breaching National Minimum Wage laws.

HMRC regularly names employers in breach, the latest list (round 20) of defaulters was published in February 2024 – over-500-companies-named-for-not-paying-minimum-wage and there is significant reputational risk to employers and businesses of getting it wrong.

Salary sacrifice is where a worker has consented to give up part of their contractual pay for a new or an enhanced non-cash benefit. This can include increased pension contributions, cycle to work scheme or a company car.  Schemes where workers can buy additional annual leave, by reducing their pay, or a one off salary sacrifice, such as in exchange for a single lump sum pension contribution can also lead to a breach in the NMW laws.

Salary sacrifice in not recognised in the NMW legislation as you cannot enter into an agreement that results in an employees pay being less than NMW.

If you operate any salary sacrifice arrangement, it is vital to check each employees reduced salary remains at, or above their applicable NMW rate in each pay reference period. Employers can cap salary sacrifice to ensure NMW rates are maintained.

At GWA, we have a dedicated team able to deal efficiently with your entire payroll, employment and HR issues. If you would like to discuss these latest changes or ensure your salaries are processed correctly, please get in touch. We are here to help.