The UK is set for the largest-ever cash increase in the national minimum wage starting in April 2024. The National Living Wage (NLW) will rise to £11.44 for workers aged 21 and over, currently 23 and over. This has sparked debate about its potential impact on businesses and the overall economy.
For some years salary sacrifice arrangements, such as pension salary sacrifice, cycle to work and childcare vouchers haven been introduced by employers, to benefit their employees, by providing cost effective benefits in exchange for giving up part of their salary. However, to be effective, salary sacrifice involves a change in an employee’s terms and conditions of employment, which contractually reduces their salary resulting in lower National Insurance costs for both employers and employees.
It is this reduced salary however which must be considered for the purposes of establishing whether the employee is receiving pay of at least the National Minimum Wage (NMW) level.
Here, we explore the increases and the interaction with salary sacrifice schemes that may be in place.
As an example, an employee aged 21 or over, on a contractual 35 hour working week, will need to be paid a minimum annual salary of £20,821 to meet the new £11.44 hourly rate from April.
If that same employee is part of a Pension Salary Exchange scheme (and so their gross salary is reduced by the standard 5% under that arrangement), their annual gross salary would need to be £21,862 (or £12.01 per hour).
It is therefore vital that employers consider whether their salary sacrifice offerings for employees could lead or have led to a breach of the NMW. Failure to do this could lead to unnecessary penalties as well as a requirement to repay any underpaid amounts.
If you have any concerns or questions regarding the forthcoming increase in the National Minimum Wage, then please do not hesitate to contact us at hello@drummondlaurie.co.uk.