The next step

HMRC’s educational bulletin

[Weblink]

Salary sacrifice and the minimum wage

Named and shamed. In February 2024, HMRC confirmed that 524 employers had failed to pay their workers nearly £16 million in breach of national minimum wage (NMW) laws, leaving over 172,000 workers out of pocket. The named and shamed employers have since paid back what they owe to their workers. Over a third of them had made pay reductions or deductions that took workers’ pay below the NMW, including as a result of salary sacrifice schemes. HMRC has therefore issued an educational bulletin for employers which specifically focuses on salary sacrifice (see The next step ).

Salary sacrifice. A salary sacrifice scheme is one where a worker has consented to give up part of their contractual pay in exchange for a new or enhanced non-cash benefit, such as increased pension contributions, a cycle to work scheme or a company car. The worker’s pay is therefore reduced as a result. However, “salary sacrifice” isn’t a term that’s recognised in the NMW legislation. The worker’s new, lower amount of pay is what is always considered for NMW purposes. As you can’t legally enter into an agreement with a worker that results in their pay being less than the NMW, it means the salary sacrifice arrangement must not reduce pay below NMW levels.

Trap. Offering salary sacrifice can lead to you unintentionally breaching NMW laws. It’s common to see schemes where workers can buy additional annual leave by agreeing to reduce their pay - that’s still a salary sacrifice. Even a one-off salary sacrifice, such as sacrificing salary in exchange for a single lump sum pension contribution, can breach the NMW.

Tip. Where you’re operating any type of salary sacrifice arrangement, check each worker’s reduced salary in each pay reference period is still at or above their applicable NMW rate. Then put procedures in place to cap salary sacrifice reduction to ensure NMW rates are maintained.

For HMRC’s educational bulletin, visit https://www.tips-and-advice.co.uk , Download Zone, year 26, issue 6.