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 for employees aged over 25. This is generally understood, yet the interaction with the use of Salary Sacrifice in employee benefits provision is less clear. This could result in employers inadvertently breaching the new minimum income level.
The survey found that almost 4 in 10 employers were unaware of this issue, with a further 19 percent aware of the possible implications of using Salary Sacrifice, but yet to review this to ensure compliance. Only nine percent of respondents had reviewed and resolved any problems in this respect.
Salary Sacrifice is a widely employed and hugely tax-efficient mechanism of funding many employee benefit packages. The “sacrificed” portion of salary avoids both income tax and national insurance, and is typically used to fund a benefits premium or contribution. It is now clear that such a sacrifice cannot reduce an employee’s income below the new National Living Wage.
“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,” said Steve Herbet from Jelf Employee Benefits.
Whilst any sacrifice should be reviewed, the company particularly urged vigilance by employers who use this mechanism for more than one benefit.
“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 25’s. With time now of the essence, we would urge employers to act now or risk breaching the new rules,” Herbert added.
The survey also found a good level of employer support for the voluntary Living Wage established by the Living Wage Foundation, with 16 percent of employers supporting this ideal at the significantly higher levels of £8.25 per hour nationally, and £9.40 per hour within London.
“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,” Herbert concluded.
The survey asked whether the company considered the use of Salary Sacrifice(s) against the new National Living Wage minimums. Out of the 180 surveyed, only 9.44 percent said they had resolved this already, 18.89 percent said that they do not use Salary Sacrifice for any benefits, and nearly 40 percent said they were not aware of this.
When asked whether their company had signed up to the voluntary Living wage, a mere 15.93 percent said they hadn’t signed up, compared to 73.08 percent who said they hadn’t.
Rebecca joined the HRreview editorial team in January 2016. After graduating from the University of Sheffield Hallam in 2013 with a BA in English Literature, Rebecca has spent five years working in print and online journalism in Manchester and London. In the past she has been part of the editorial teams at Sleeper and Dezeen and has founded her own arts collective.
