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National minimum wage (NMW) consultation on salaried workers and salary sacrifice schemes

NMW consultation on salaried workers and salary

KPMG has submitted its response to the Government consultation on the operation of NMW for salaried workers and salary sacrifice schemes.


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The consultation considered proposed changes to the criteria for employees to be treated as ‘salaried workers’ for NMW purposes. It also invited comments on the practical interaction of salary sacrifice schemes with the NMW rules.

What did the consultation cover?

Specific conditions must be met for a worker to be considered as ‘salaried’ for NMW purposes. These conditions can be difficult to meet, which creates uncertainty for employers.

In our experience, many employers assume that employees are salaried but, on closer examination, not all of the relevant conditions are met.

The incorrect classification of workers can lead to the incorrect calculation of pay for NMW purposes and inadvertent NMW breaches.

Additionally, salary sacrifice arrangements, which many employers offer their workforce, can potentially have adverse interactions with the NMW rules.

What are KPMG’s views?

The Department for Business, Energy & Industrial Strategy posed a number of specific questions in its consultation and KPMG made the following suggestions in response:

  • The conditions which must be met in order for a worker to be considered as salaried for NMW purposes should be extended.

This could include considering all pay cycles and not just the weekly or monthly cycles currently allowed within the regulations.

In addition, custom and practice may play a part and not just strict contractual wording when assessing whether workers meet the salaried worker definition.

  • The annual calculation year for salaried workers should be regularised.

The current regulations require an employer to have regard to each worker’s start date and to use a different calculation year for each worker. Simplifying this by moving to a uniform calculation year for each employer (or business units/divisions) may ease this requirement without detriment to workers.

  • Additional pay elements should be allowed within the definition of a salaried worker.

Currently, to be considered salaried, a worker can only be paid an annual salary or annual salary plus a performance bonus. Provided the calculation of basic salary does not fall below NMW, workers would not be disadvantaged if the payment of additional compensation items did not preclude them from being regarded as salaried.

  • The operation of the rules in relation to salary sacrifice schemes actually restrict lower paid workers access to pensions and benefits.

Reductions in pay because a worker has agreed to sacrifice salary in return for a benefit reduces NMW pay and in our experience, is one of the most common reasons for employers breaching NMW regulations. The current operation of the rules can prevent workers joining these schemes and accessing the benefits.

  • Other areas where NMW regulations should be considered include time off in lieu as well as annualised or banked hours, the definition of working time, training bonds, savings schemes and the rules relating to voluntary workers.

What happens now?

The Government will analyse the submissions to the consultation and will publish its response in due course. 

In the meantime, if you have any questions or wish to read our response or discuss any aspects of the consultation, please contact Caroline Laffey, Partner Tax & People Services KPMG in the UK, Eloise Knapton Partner Payroll Advisory Services KPMG in the UK or Donna Sharp, Director Employment Legal Services KPMG in the UK.  

© 2020 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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