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Salary sacrifice risk for new Living Wage

by John Greenwood
January 21, 2016
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Just 9 per cent of employers have reviewed salary sacrifice usage against the new National Living Wage requirements, according to new research.

With the introduction of the National Living Wage less than three months away, a survey by Jelf Employee Benefits highlights that many employers need to take urgent action to ensure full compliance with this new law.

The new requirement sets a higher minimum income level of £7.20 an hour for employees aged over 25. That means any deductions taking salary below £13,104 for a 35-hour week risk enforcement by HMRC from April. That is an 11 per cent increase on this year’s £11,830 minimum wage for a 35-hour week for over 21s. Jelf says any employees within 5 per cent of the threshold – a salary of £13,760 – where salary sacrifice is in place, should be reviewed as a matter of course.

Jelf says that while this is generally understood, the interaction with the use of salary sacrifice in employee benefits provision is less clear. It warns while any sacrifice should be reviewed, employers who use the mechanism for more than one benefit should be particularly vigilant and risk inadvertently breaching the new minimum income level.

The survey found that almost 4 in 10 employers – 39 per cent – were unaware of the issue, with a further 19 per cent aware of the possible implications of using salary sacrifice, but yet to review this to ensure compliance. Only 9 per cent of respondents had reviewed and resolved any problems in this respect.

Salary sacrifice cannot reduce an employee’s income below the new National Living Wage.

The survey also found a significant level of employer support for the voluntary Living Wage established by the Living Wage Foundation, with 16 per cent of employers supporting this ideal at the significantly higher levels of £8.25 per hour nationally, and £9.40 per hour within London.

Jelf Employee Benefits head of benefits strategy Steve Herbert says: “These findings are more than worrying: the income level and date of introduction were both established in the Summer Budget statement and we would therefore have expected employers to be taking action to ensure compliance with this new edict.

“Some employees have a number of sacrifices in place for different benefits, and the cumulative impact of this may unexpectedly place employees close to the new legal minimum income of £7.20 per hour for the over 25s.

“With time now of the essence, we would urge employers to act now or risk breaching the new rules.”

“Many employers already pay in excess of the voluntary Living Wage, so we would encourage more to sign up to this benchmark. Paying the Living Wage significantly helps employees and their families, and this achievement will be better recognised by workers and potential recruits if formal certification is achieved. We hope that the increased media noise around the National Living Wage also results in many more employers applying for voluntary Living Wage accreditation.”

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