As the need for salary sacrifice benefits increase, the UK government has changed its approach to the enforcement of salary sacrifice arrangements where workers are paid less than the National Minimum Wage rate due to salary sacrifice deductions. View the Feb 2020 announcement by HMRC here..
Although employers are still required to ensure that workers are not paid below the NMW, the change is that if following an HMRC investigation the only reason NMW arrears arose was in respect of a deduction from a worker's salary due to them being in a salary sacrifice arrangement, with the worker's consent, and the worker has received any arrears due to them, then the employer will not face a penalty or be named or shamed.
Please read the below excerpt:
“If, following an HMRC investigation, the only reason minimum wage was underpaid was because the employer made a deduction from a worker’s pay / enrolled them in a salary sacrifice scheme, with the worker’s consent, and the worker has received the correct good/benefit as a result of that deduction (e.g cycle to work, childcare vouchers, savings club, season ticket etc.), the employer will not face a penalty (or be named). This direction does not apply to deductions for items: in connection with employment (e.g. uniform), expenses or accommodation. Employers that have been convicted of NMW offences, been party to a labour market enforcement undertaking or order, or who have been issued an NoU in the past six years (unless for not more than £500, withdrawn or under appeal) will not benefit from this direction.”
Employers may choose to offer all employees the ability to enrol onto a salary sacrifice benefit. If an employer would like to do this, we would fully recommend that the employer seek their own tax and legal advice surrounding this matter. It may be the case that the employer is still required to correct any underpayments to ensure employees are paid NMW/NLW.
If you would like to consider opening up your Cycle to Work scheme to employees please speak to your Client Success Manager or Client Support about switching on the underpayment solution in SmartPay™.
Before switching this option on, you may also want to consider limiting the maximum amount these employees can apply for. There are two ways in which this can be done:
1. Setting an individual SmartPay™ limit per employee. Requires update to membership file.
2. Choose a limit based on % of employees salary