Salary Sacrifice - how low can you go ?

WobblyDog

I currently salary sacrifice 55% of my gross salary into my pension, and I'd like to increase my contributions a bit, but I'm worried about violating the lower limit (determined by the national minimum wage).

Up until now, I've assumed that my employer is not permitted to let my take-home pay drop below £14430 per year, which I calculate as
national minimum wage (£7.50 per hour) * 52 weeks * 37 hours.

Is that the correct calculation, or is it my gross pay that can't drop below £14430? I would ask my employer, but I suspect it would take months to get an answer.

kidmugsy

If it's your take-home pay I shall finally despair of any hope of rationality in our tax system.

Paul_Herring

It's gross, not net, pay. https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye#overview

A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit. As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.

A salary sacrifice arrangement can’t reduce an employee’s cash earnings below the National Minimum Wage rates.

The term 'cash pay/earnings' there is before tax.

michaels

It is your gross pay.

You can make additional comtributions from your taxed income below that on which you can still claim back basic rate tax even if you never paid it because of the personal allowance

But don't forget annual allowance and carried forward.

MoneySavingUser

WobblyDog wrote: »

Up until now, I've assumed that my employer is not permitted to let my take-home pay drop below £14430 per year, which I calculate as
national minimum wage (£7.50 per hour) * 52 weeks * 37 hours.

Is that the correct calculation, or is it my gross pay that can't drop below £14430? I would ask my employer, but I suspect it would take months to get an answer.

In principle yes - though as others have said it is GROSS pay not take home pay. The specifics depend on your contract.

I use 7.5 hours * £7.50 * 260 working days (52 weeks * 5 days, your employee handbook might state that you are assumed to have 260 working days in a year) as my calculation.

bluenose1

I have spent ages looking at this myself as trying to work the same thing out.
As an employee you pay National Insurance contributions if you earn more than £8,164, per annum so if your take home pay was approx £680 per month you would not pay National Insurance. However I have read that the minimum you can earn must be over the National Insurance threshold. So presumably if you reduce your take home pay to £681 per month you will be OK.

I used the salary calculator and increased my pension contributions until I got it to be take home pay of approx £681. You will see this then changes your NI Contributionss to £1.17 per year.
https://www.thesalarycalculator.co.uk/salary.php

Regarding the minimum amount you can earn, I had initially thought it couldn't go below minimum wage. I am still not 100% sure as still waiting for my increased contributions to take effect in my pay slip.
Good luck as I am still trying to work it all out myself.

lisyloo

Regarding the minimum amount you can earn, I had initially thought it couldn't go below minimum wage.

Legally speaking your employer MUST pay you minimum wage.
Although I agree it's not clear exactly what that is.

bluenose1

lisyloo wrote: »

Legally speaking your employer MUST pay you minimum wage.
Although I agree it's not clear exactly what that is.

I know, it's not very clear.
I wonder if because it is VOLUNTARY deductions you intend to make you can below the NMW.
I spoke to one our Pension team and she thought it would be allowable but until i get my payslip with the increased contributions on still not 100% sure.

Paul_Herring

bluenose1 wrote: »

I know, it's not very clear.
I wonder if because it is VOLUNTARY deductions you intend to make you can below the NMW.
I spoke to one our Pension team and she thought it would be allowable but until i get my payslip with the increased contributions on still not 100% sure.

What is made perfectly clear is that you cannot sacrifice your wages below the level such that what's left would be the equivilent of you being paid below the minimum wage.

That level being:

£7.50 x hours worked.

Problems tend to start if you cannot pin down exactly what hours worked means for your particular circumstance.

If you're salaried, it'll be (or should be!) in your contract (7.5 hrs per day for a 5 day week, 37.5 hrs a week for 47 weeks a year, whatever.)

If you're hourly paid, it'll be however many hours you work in that day/week/month/4-week period.

Things like overtime and bonuses tend to muddy the waters.

Though I believe working 'overtime' if you're (fixed-hour) salaried and you normally get no compensation for any extra hours, means those extra hours aren't 'hours worked' for this particular calculation.

RuleTheWorld

People can earn the minimum wage and still make pension contributions how does that work then

bigadaj

There was a post on here a few weeks ago from someone who had salary sacrificed below minimum wage with a large employer.

They ended up getting a cheque after retirement from their employer to make up the difference, you could say double bubble or argue a bit more as the pension contributions were tax and NI free.