19 Feb

Salary Sacrifice V The New Living Wage – Are you prepared?

Salary Sacrifice V The New Living Wage – Are you prepared?

Both Salary Sacrifice and the National Living Wage have featured heavily in various media articles over the last few months. Many benefits are to be stripped from the scope of salary sacrifice with only very few remaining seemingly untouched and many employers are faced with ever increasing costs of not only increasing the minimum wage but perhaps having to lift pay rates across all layers of their pay structures in order to maintain a clear hierarchy.

We are inundated with discussions surrounding these topics but only looking at them in their own right. Have the consequences been considered when looking at them together? And are their plans in place to ensure they are legally addressed?

If you use salary sacrifice for your pension arrangements, I highly recommend you read on.

What is Salary Sacrifice?
The idea behind this is quite simple. You give up part of your salary and, in return, your employer gives you a non-cash benefit, such as childcare vouchers, or increased pension contributions. 

Once you accept a salary sacrifice, your overall pay is lower, so the employee pays less tax and both employee and employer pay lower National Insurance contributions.

Limits on salary sacrifice?
It is against the law to sacrifice a salary by an amount that leaves the employee effectively receiving less than the minimum wage. It is therefore important that action is taken now.

Why is this important?
Many employers who perhaps pay slightly above the minimum wage and therefore have happily enrolled employees on the salary sacrifice scheme, may not have considered the effects of the National Living Wage coming into play in April 2017.

What is changing?
Chancellor Phillip Hammond’s Autumn Statement declared that from April 2017 the minimum wage will rise 4% from £7.20 to £7.50. That’s £15,600 per annum!

What should employers do?
It is important that employers assess their payroll and indeed their pension scheme members. Assess the resulting salaries after exchanges have been made and take steps to ensure your scheme remains compliant 

With less than 3 months until the changes come into effect, ensure you are aware of the implications to your business.

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