Government and employers must pull together to help low-paid workers
As Christmas recedes over the horizon, two decidedly unfestive stories appeared in the news this week.
Food retailer Iceland has been on the receiving end of a £21m demand from HMRC over a voluntary Christmas savings scheme for its staff. HMRC claims that saving into the scheme pushed some employees’ pay below the National Minimum Wage (NMW) – workers received all of the money they had saved back in time for Christmas.
In the same week, the Advertising Standards Authority ruled that an advert from payday loan provider Provident acted irresponsibly in using images of children and babies in Christmas marketing materials for loans with an APR of 535.5 per cent.
What should employers conclude from these stories? On the one hand, they have a vital role to play in helping employees avoid the money-related stresses that fuel applications for high-interest loans.
But where there is a risk that businesses could be penalised for falling foul of uncertain legislation, employers will hardly be encouraged to get more involved with the financial wellbeing of their workers.
The government recognises that rules affecting workers on or near the NMW are too vague – it has acknowledged that in some instances employers exclude low-paid workers from benefits rather than run the risk of breaching the NMW. It launched a consultation in late December to explore changes to the regulations, as well as the way in which salary sacrifice schemes operate. It is open for comments until 1 March.
This consultation is a welcome starting point that can further strengthen NMW legislation. Hopefully it will be followed by a similar investigation into the use of net pay arrangements (NPA) in pensions. These impact low earners on salaries between £10,000 (the lower earnings threshold for auto-enrolment) and £11,850 (the personal allowance for income tax).
There are two possible tax models for pension schemes: relief-at-source, which ensures non-tax payers receive 20% tax relief on pension contributions of up to £2,880 each year, and NPAs which don’t implement this tax relief. HMRC estimates that this affects around 1.2 million low earners at present.
Confusion around salary sacrifice arrangements for National Minimum Wage earners and use of NPAs both directly penalise low-paid workers. Employers now need partnership and clarity from government to make sure all employees are given every possible opportunity to make their pay go further and avoid the financial stresses that make payday lenders’ jobs easier.
To better understand financial wellbeing issues that affect all employees, REBA has launched the FinWell Forum – a dedicated financial wellbeing conference – to investigate topics such as pay, insurance, discount schemes, debt management, financial education, savings, pensions, technology and ‘at’ and ‘post’ retirement solutions. REBA’s FinWell Forum takes place on 7 March 2019 in London. Registration for the event is now open.
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