New National Minimum Wage Law: enforcement policy and salary sacrifice

18 February 2020

Earlier this month, the Department for Business, Energy and Industrial Strategy (BEIS) published updated guidance relating to the enforcement of National Minimum Wage Law, which discussed how employers will not have financial penalties imposed upon them in scenarios where National Minimum Wage (NMW) has not been paid due to a reduction in pay resulting from a salary sacrifice arrangement, where certain conditions are met.

To clarify, the position on NMW and salary sacrifice remains unchanged, so a salary sacrifice arrangement must not reduce an employee’s cash earnings below the NMW rate – it is simply that associated penalties will not be issued where the following conditions are met:

1.) The whole amount of the underpayment in the reference period needs to be attributable to a salary sacrifice scheme, or a purchase from the employer which is not for items required for the employee to undertake their work (e.g. uniform), or a savings scheme operated by the employer for the benefit of the employee

2.) No part of the underpayment when it relates to condition one relates to deductions as respects a worker’s expenditure or as respects living accommodation

3.) The worker has consented to the reduction or deduction

4.) The worker has received the relevant goods or benefits, or repayment of monies into the saving scheme in full compliance with the terms and conditions

5.) Employers that have been convicted of NMW offences, been party to a labour market enforcement undertaking or order, or who have been issued a Notice of Underpayment (NoU) in the past six years will still receive penalties

To reiterate, NMW should not be reduced by a salary sacrifice or deduction arrangement. BEIS has confirmed the rationale behind the decision to remove financial penalties relating to the scenarios where this does happen, and stated that employers will still need to pay employees back for any underpayment in relation to NMW and salary sacrifice, but the removal of the associated financial penalties provides employers with an opportunity to reassess their practices and ensure that they are compliant with NMW law.

“The intention of the direction is to ensure that historical liabilities are repaid to workers, whilst providing employers with an opportunity to ensure their practices going forward are compliant with the law."


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