Impact on NMW - Buying & Selling Holidays

Trixy

Hello

My company offers the option to buy & sell holidays but I wondered if that impacted on NMW?  ie if an employee buys some holiday and the employer deducts this amount over a set period, it reduces their pay to below NMW.  I know this is allowed in some cases but wondered if it was allowed in this instance?

Many thanks in advance.

Jillanddy

Yes it is. The employee is being paid the NMW and choosing to spend their wage on holiday instead of tins of beans. Perfectly legitimate as a choice.

Marcon

This is a useful link, not least because it gives helpful examples re NMW and some of the queries which pop up on this forum: https://www.gov.uk/guidance/calculating-the-minimum-wage/calculating-the-minimum-wage#deductions-from-pay-and-payments-by-workers-that-do-not-reduce-minimum-wage-pay

Trixy

Thank you both.

Having followed the link from Marcon, I can see that using salary sacrifice can mean the employees salary drops below NMW so it looks like we need to revisit this for staff unless I'm reading this wrong.

Jillanddy

Buying extra holiday isn't, as I understand it, salary sacrifice though. You aren't really buying anything, you are agreeing to unpaid leave and spreading the cost of that over the whole year. The alternative would be to simply say people can have a set amount of unpaid leave as a right, and they save up for it themselves. I believe salary sacrifice is more about things like vehicle or bike purchase, childcare vouchers etc. Happy to be proved wrong, but we offer holiday purchase schemes and have thousands on minimum wages and there is no different scheme for them than the rest of us. And the employer certainly isn't offering a pay rise for it - our pay is fixed nationally!

JCS1

Jillanddy said:

Buying extra holiday isn't, as I understand it, salary sacrifice though. You aren't really buying anything, you are agreeing to unpaid leave and spreading the cost of that over the whole year. The alternative would be to simply say people can have a set amount of unpaid leave as a right, and they save up for it themselves. I believe salary sacrifice is more about things like vehicle or bike purchase, childcare vouchers etc. Happy to be proved wrong, but we offer holiday purchase schemes and have thousands on minimum wages and there is no different scheme for them than the rest of us. And the employer certainly isn't offering a pay rise for it - our pay is fixed nationally!

We also offer the opportunity to buy holidays, but do take into account that the reduction in salary may take people below NMW and in those cases it is not allowed.

Ath_Wat

JCS1 said:

Jillanddy said:

Buying extra holiday isn't, as I understand it, salary sacrifice though. You aren't really buying anything, you are agreeing to unpaid leave and spreading the cost of that over the whole year. The alternative would be to simply say people can have a set amount of unpaid leave as a right, and they save up for it themselves. I believe salary sacrifice is more about things like vehicle or bike purchase, childcare vouchers etc. Happy to be proved wrong, but we offer holiday purchase schemes and have thousands on minimum wages and there is no different scheme for them than the rest of us. And the employer certainly isn't offering a pay rise for it - our pay is fixed nationally!

We also offer the opportunity to buy holidays, but do take into account that the reduction in salary may take people below NMW and in those cases it is not allowed.

I am pretty sure that if that is the law it is an unintended consequence.  That's just denying something to those on minimum wage which is available to others.

Jillanddy

JCS1 said:

Jillanddy said:

Buying extra holiday isn't, as I understand it, salary sacrifice though. You aren't really buying anything, you are agreeing to unpaid leave and spreading the cost of that over the whole year. The alternative would be to simply say people can have a set amount of unpaid leave as a right, and they save up for it themselves. I believe salary sacrifice is more about things like vehicle or bike purchase, childcare vouchers etc. Happy to be proved wrong, but we offer holiday purchase schemes and have thousands on minimum wages and there is no different scheme for them than the rest of us. And the employer certainly isn't offering a pay rise for it - our pay is fixed nationally!

We also offer the opportunity to buy holidays, but do take into account that the reduction in salary may take people below NMW and in those cases it is not allowed.

I'm public sector,  and we simply wouldn't break the law so obviously. So I wonder if the way it is done is a grey area? We also have provision for periods of unpaid leave which is discretionary- not all employers do. Perhaps its an accounting exercise... After all,  if you think about it,  term time contracts for low paid workers effectively do the same thing in many ways because pay is spread over 12 months even though they don't work 12 months. Thinking about it,  I do know that if you buy extra holiday you have to make up pension payments extra for the leave,  and that's what happens if you take unpaid leave. 

Jillanddy

Ath_Wat said:

JCS1 said:

Jillanddy said:

Buying extra holiday isn't, as I understand it, salary sacrifice though. You aren't really buying anything, you are agreeing to unpaid leave and spreading the cost of that over the whole year. The alternative would be to simply say people can have a set amount of unpaid leave as a right, and they save up for it themselves. I believe salary sacrifice is more about things like vehicle or bike purchase, childcare vouchers etc. Happy to be proved wrong, but we offer holiday purchase schemes and have thousands on minimum wages and there is no different scheme for them than the rest of us. And the employer certainly isn't offering a pay rise for it - our pay is fixed nationally!

We also offer the opportunity to buy holidays, but do take into account that the reduction in salary may take people below NMW and in those cases it is not allowed.

I am pretty sure that if that is the law it is an unintended consequence.  That's just denying something to those on minimum wage which is available to others.

I would agree in  principle  but that happens in lots of ways anyway. People on minimum wages can't buy salary sacrifice schemes like childcare vouchers.

Marcon

Trixy said:

Thank you both.

Having followed the link from Marcon, I can see that using salary sacrifice can mean the employees salary drops below NMW so it looks like we need to revisit this for staff unless I'm reading this wrong.

Try this link as well, which leads directly to the HMRC customer forum: https://community.hmrc.gov.uk/customerforums/nmwnlw

kimwp

NMW is an hourly rate. Presumably the holidays are bought at the same hourly rate as the employee is paid - if so, then the employee's wage per hour will be unchanged if they buy holiday. They will be paid less, but will work fewer hours.