Salary Sacrifice

Penguin_

Afternoon all

A friend of mine is employed by a company which are offering a cycle to work scheme which will be paid via salary sacrifice. The amount they will sacrifice a month will be about £40 & they work 40 hours a week, but they are only paid 10p above the NMW of £9.50 (they are in their early 30s). So a quick beer mat calculation suggests that thier monthly gross pay would be (9.60 * 40 * 52) / 12 = £1664 less the £40 leaving them with a gross pay of £1624.00.

However, does this now mean they are being paid below the NMW & therefore they shouldn't be allowed to take part in the scheme as their new hourly rate would be (1624*12)/52/40 which gives £9.37 per hour.

The employer has said this is fine but I am not so sure....

TIA

Undervalued

Penguin_ said:

Afternoon all

A friend of mine is employed by a company which are offering a cycle to work scheme which will be paid via salary sacrifice. The amount they will sacrifice a month will be about £40 & they work 40 hours a week, but they are only paid 10p above the NMW of £9.50 (they are in their early 30s). So a quick beer mat calculation suggests that thier monthly gross pay would be (9.60 * 40 * 52) / 12 = £1664 less the £40 leaving them with a gross pay of £1624.00.

However, does this now mean they are being paid below the NMW & therefore they shouldn't be allowed to take part in the scheme as their new hourly rate would be (1624*12)/52/40 which gives £9.37 per hour.

The employer has said this is fine but I am not so sure....

TIA

I am inclined to agree with the employer.

If I understand you correctly your friend is effectively choosing to buy a bike in "easy monthly instalments"? It just so happens that the credit provider is his employer?

So, how is this any different (other than maybe cheaper) than him taking his full wages and buying the bike on credit elsewhere?

He is still being paid the same for his working hours.

Marcon

Penguin_ said:

Afternoon all

A friend of mine is employed by a company which are offering a cycle to work scheme which will be paid via salary sacrifice. The amount they will sacrifice a month will be about £40 & they work 40 hours a week, but they are only paid 10p above the NMW of £9.50 (they are in their early 30s). So a quick beer mat calculation suggests that thier monthly gross pay would be (9.60 * 40 * 52) / 12 = £1664 less the £40 leaving them with a gross pay of £1624.00.

However, does this now mean they are being paid below the NMW & therefore they shouldn't be allowed to take part in the scheme as their new hourly rate would be (1624*12)/52/40 which gives £9.37 per hour.

The employer has said this is fine but I am not so sure....

TIA

An employee can't salary sacrifice below minimum wage, so the employer is wrong, as is Undervalued. This crops up time and again on the pensions board, when the same point is made repeatedly!

See https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

Penguin_

Thanks both....I will have a look at the link Marcon has provided.

Undervalued

Marcon said:

Penguin_ said:

Afternoon all

A friend of mine is employed by a company which are offering a cycle to work scheme which will be paid via salary sacrifice. The amount they will sacrifice a month will be about £40 & they work 40 hours a week, but they are only paid 10p above the NMW of £9.50 (they are in their early 30s). So a quick beer mat calculation suggests that thier monthly gross pay would be (9.60 * 40 * 52) / 12 = £1664 less the £40 leaving them with a gross pay of £1624.00.

However, does this now mean they are being paid below the NMW & therefore they shouldn't be allowed to take part in the scheme as their new hourly rate would be (1624*12)/52/40 which gives £9.37 per hour.

The employer has said this is fine but I am not so sure....

TIA

An employee can't salary sacrifice below minimum wage, so the employer is wrong, as is Undervalued. This crops up time and again on the pensions board, when the same point is made repeatedly!

See https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

OK, thanks.

Still seems a bit daft for the reason I suggested earlier....

So, how is this any different (other than maybe cheaper) than him taking his full wages and buying the bike on credit elsewhere?

MovingForwards

Ask your friend to double check they own it or have the option to pay at the end of the deal to keep the bike as these tend to be a lease option.

ReadingTim

MovingForwards said:

Ask your friend to double check they own it or have the option to pay at the end of the deal to keep the bike as these tend to be a lease option.

Technically it is a lease, but the amount you have to pay at the end of the deal to transfer the ownership to yourself is pretty minimal - I think mine was about £20 or some similar amount, so it hardly breaks the bank.  

Marcon

Undervalued said:

Marcon said:

Penguin_ said:

Afternoon all

A friend of mine is employed by a company which are offering a cycle to work scheme which will be paid via salary sacrifice. The amount they will sacrifice a month will be about £40 & they work 40 hours a week, but they are only paid 10p above the NMW of £9.50 (they are in their early 30s). So a quick beer mat calculation suggests that thier monthly gross pay would be (9.60 * 40 * 52) / 12 = £1664 less the £40 leaving them with a gross pay of £1624.00.

However, does this now mean they are being paid below the NMW & therefore they shouldn't be allowed to take part in the scheme as their new hourly rate would be (1624*12)/52/40 which gives £9.37 per hour.

The employer has said this is fine but I am not so sure....

TIA

An employee can't salary sacrifice below minimum wage, so the employer is wrong, as is Undervalued. This crops up time and again on the pensions board, when the same point is made repeatedly!

See https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

OK, thanks.

Still seems a bit daft for the reason I suggested earlier....

So, how is this any different (other than maybe cheaper) than him taking his full wages and buying the bike on credit elsewhere?

I agree - but I think the rationale is that it would be impossible to police minimum wage payments if employers were allowed to have all sorts of variations on what can and can't be included.

ReadingTim

Undervalued said:

Still seems a bit daft for the reason I suggested earlier....

So, how is this any different (other than maybe cheaper) than him taking his full wages and buying the bike on credit elsewhere?

If you're a higher rate taxpayer then it's significantly cheaper, as you're saving tax at your marginal rate of 40%.  So a bike retailing at £1,000 will only cost you £600, deducted in monthly instalments.  

At the lower rate of tax, the saving will also be less, so it's less of a good deal, and worth shopping around to see if better deals are available, possibly financed by credit, as you mention.  For someone paid just above NMW, a good quality 2nd hand bike is probably a better (and cheaper) bet.  

Savvy_Sue

Marcon said:

I agree - but I think the rationale is that it would be impossible to police minimum wage payments if employers were allowed to have all sorts of variations on what can and can't be included.

I agree with you: not that long since I did HMRC's webinar on NMW, and they are quite tight. Unsurprisingly ...