• National Minimum/Living Wage and auto enrolment and salary sacrifice pensions etc

    Hi all,

    Has anybody looked into and can offer constructive advice of the effects of the changes in April 2018 to auto enrolment pension, with employees known contributions going from 1% to 3% and the unknown NLW value? Our situation is compounded by salary sacrifice, in that pension contributions are taken pre-tax and NI so a lower paid rate is made even though the gross amounts made would be the same as if the scheme was taken post-tax and NI.

    We have a grading system in place for our hourly employees and the worry is, as I have read that salary sacrifice may mean that we could in the future, especially when in 2020 the goal is a £9/hr paid rate, run the risk of paying below NLW for our lowest grade.

    I should also add that we also run sacrifice childcare vouchers and bike to work scheme that could equally influence the NLW.
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  • Hi all,

    Has anybody looked into and can offer constructive advice of the effects of the changes in April 2018 to auto enrolment pension, with employees known contributions going from 1% to 3% and the unknown NLW value? Our situation is compounded by salary sacrifice, in that pension contributions are taken pre-tax and NI so a lower paid rate is made even though the gross amounts made would be the same as if the scheme was taken post-tax and NI.

    We have a grading system in place for our hourly employees and the worry is, as I have read that salary sacrifice may mean that we could in the future, especially when in 2020 the goal is a £9/hr paid rate, run the risk of paying below NLW for our lowest grade.

    I should also add that we also run sacrifice childcare vouchers and bike to work scheme that could equally influence the NLW.
  • Hi @Mark Cambridge thanks for your question. On reflection, we feel your question needs specialist advice. As part of your EEF membership, you are entitled to HR & legal advice, so I will arrange to have your company's named advisor call you in the next few days.

    If anyone else in the community has any advice or suggestions please feel free to share them with Mark.

    Thanks

    Amy
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  • Hi @Mark Cambridge thanks for your question. On reflection, we feel your question needs specialist advice. As part of your EEF membership, you are entitled to HR & legal advice, so I will arrange to have your company's named advisor call you in the next few days.

    If anyone else in the community has any advice or suggestions please feel free to share them with Mark.

    Thanks

    Amy
  • Hi @Amy Brunsdon. Thanks and look forward to the call.
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  • Hi @Amy Brunsdon. Thanks and look forward to the call.
  • Hi @Mark Cambridge

    I know one of our legal advisers got in touch with you and I hope that was useful. I work in EEF's Policy and Representation team and work on the NLW/NMW so always interested to hear feedback from members as to how they are absorbing the costs of the increases and any challenges in doing so please feel free to get in touch with me directly and we can ensure your views are heard.

    We have recently submitted evidence to the Low Pay Commission who make recommendations to Government on what the National Living Wage should be for 2018. Based on the target to get the NLW to 90% of median earnings by 2020 we expect it will be around £7.85 in April 2018. The LPC usually report in October and then Government makes the final announcement around November so we will make sure you are aware when the final rates are announced.

    In the meantime, if you want to chat further please do drop me a message
    Last edited by Daniel Kirmatzis; 22-08-2017 at 10:35 AM.
    1
  • Hi @Mark Cambridge

    I know one of our legal advisers got in touch with you and I hope that was useful. I work in EEF's Policy and Representation team and work on the NLW/NMW so always interested to hear feedback from members as to how they are absorbing the costs of the increases and any challenges in doing so please feel free to get in touch with me directly and we can ensure your views are heard.

    We have recently submitted evidence to the Low Pay Commission who make recommendations to Government on what the National Living Wage should be for 2018. Based on the target to get the NLW to 90% of median earnings by 2020 we expect it will be around £7.85 in April 2018. The LPC usually report in October and then Government makes the final announcement around November so we will make sure you are aware when the final rates are announced.

    In the meantime, if you want to chat further please do drop me a message
  • Hi @Mark Cambridge,

    Regardless of the changes in April 2018 to increase minimum pension contributions, the rules of operating a salary sacrifice scheme have not changed and workers will not be able to participate in a salary sacrifice arrangement if one or all of their benefits mean their cash earnings would fall below the National Minimum Wage. A number of employers have taken the decision not to operate for staff whose earnings may fall below the National Living Wage.

    https://www.gov.uk/guidance/salary-s...247.1504182537

    Broadstone is an Advantages Partner of EEF
    Last edited by Amy Brunsdon; 01-09-2017 at 08:05 AM. Reason: Tagging member
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  • Hi @Mark Cambridge,

    Regardless of the changes in April 2018 to increase minimum pension contributions, the rules of operating a salary sacrifice scheme have not changed and workers will not be able to participate in a salary sacrifice arrangement if one or all of their benefits mean their cash earnings would fall below the National Minimum Wage. A number of employers have taken the decision not to operate for staff whose earnings may fall below the National Living Wage.

    https://www.gov.uk/guidance/salary-s...247.1504182537

    Broadstone is an Advantages Partner of EEF
  • To provide further clarification, salary sacrifice is not a deduction, but a reduction in salary agreed through a variation in the contract of employment between employer and employee. It is not therefore possible to auto-enrol using salary sacrifice. An employee could choose to join a scheme using sal-sac before they are auto-enrolled, or could make a sal-sac agreement afterwards.
    Equally it is not possible to make any sacrifice that would reduce gross salary below the National Living Wage or National Minimum Wage.
    This does cause an issue where an employee earning little more than the NLW/NMW has chosen to sacrifice the min required by Auto-Enrolment, which then needs to increase in April 2018 & 2019, and then would otherwise reduce salary below the NLW.
    In this scenario you have 2 options. 1.Maintain the existing agreement and make up the contribution shortfall in additional employer contributions and net employee deductions. I doubt this approach would be popular with payroll! 2. End the salary sacrifice agreement and deduct employee contributions as normal, and prevent the use of sal-sac in future for salaries under a suitable amount.
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  • To provide further clarification, salary sacrifice is not a deduction, but a reduction in salary agreed through a variation in the contract of employment between employer and employee. It is not therefore possible to auto-enrol using salary sacrifice. An employee could choose to join a scheme using sal-sac before they are auto-enrolled, or could make a sal-sac agreement afterwards.
    Equally it is not possible to make any sacrifice that would reduce gross salary below the National Living Wage or National Minimum Wage.
    This does cause an issue where an employee earning little more than the NLW/NMW has chosen to sacrifice the min required by Auto-Enrolment, which then needs to increase in April 2018 & 2019, and then would otherwise reduce salary below the NLW.
    In this scenario you have 2 options. 1.Maintain the existing agreement and make up the contribution shortfall in additional employer contributions and net employee deductions. I doubt this approach would be popular with payroll! 2. End the salary sacrifice agreement and deduct employee contributions as normal, and prevent the use of sal-sac in future for salaries under a suitable amount.
  • I would also add that this issue is not limited to those earning earning near the NLW/NMW. A salary sacrifice can only be increased by mutual agreement. You may wish to limit use of salary sacrifice to those paying above 5% of Qualifying Earnings (or alternative standard used) to save a lot of confusion and/or administration, which probably outweighs the marginal NI savings on small contributions.
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  • I would also add that this issue is not limited to those earning earning near the NLW/NMW. A salary sacrifice can only be increased by mutual agreement. You may wish to limit use of salary sacrifice to those paying above 5% of Qualifying Earnings (or alternative standard used) to save a lot of confusion and/or administration, which probably outweighs the marginal NI savings on small contributions.
  • Thanks @Kirsty Robinson for providing the HMRC link and that all makes a lot more sense. I had not appreciated that we could be selective on who could be allowed to salary sacrifice, I naively thought it was either all in or non in as far as scheme operation, but I guess that needs to be discussed with the pension scheme provider, as those not on salary sacrifice would have to have the provider claim back their basic tax paid on the contribution made.
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  • Thanks @Kirsty Robinson for providing the HMRC link and that all makes a lot more sense. I had not appreciated that we could be selective on who could be allowed to salary sacrifice, I naively thought it was either all in or non in as far as scheme operation, but I guess that needs to be discussed with the pension scheme provider, as those not on salary sacrifice would have to have the provider claim back their basic tax paid on the contribution made.
  • Hi @Mark Cambridge, you're welcome. I would also check with the provider with regards to how you report any
    future contributions to them that require the provider to claim back the tax relief.
    Last edited by Amy Brunsdon; 01-09-2017 at 12:54 PM.
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  • Hi @Mark Cambridge, you're welcome. I would also check with the provider with regards to how you report any
    future contributions to them that require the provider to claim back the tax relief.
  • Hi @Mark Cambridge, if you do have any further queries please get in touch. Kirsty
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  • Hi @Mark Cambridge, if you do have any further queries please get in touch. Kirsty