How salary sacrifice could put you in breach of the new National Living Wage
Most companies will have already considered the payroll cost implications and the impact this will have on other ancillary benefits. However, one area that may have been overlooked is how the changes will interact with salary sacrifice arrangements that are already in place.
Under current legislation a salary sacrifice arrangement cannot reduce an employee's cash earnings below the National Minimum Wage. HMRC have not yet confirmed definitively that the same principle will apply for the National Living Wage, but expectations are that they will do.
To make sure the existing rules are not breached, employers often put in place a "pay limit" below which employees cannot participate in salary sacrifice. If these pay limits are not updated companies could inadvertently pay employees cash earnings below the new National Living Wage. Therefore salary sacrifice processes and pay limits need urgent reviews to ensure they are fully compliant.
With HMRC announcing a crackdown on employers not complying with the minimum wage rules, failing to consider your salary sacrifice arrangements before 1 April 2016 could lead to costly mistakes – the maximum penalty currently stands at £20,000 per underpaid employee.
This article was provided by LCP.
