Salary sacrifice and staying above National Minimum Wage

bluebottle11

I pay AVCs into my work pension each month,  would like to pay more, but I have reached the NMW limit. Is the only other option to open a SIPP?

singhini

@bluebottle11
Ive spent the last few days looking into this and what you say about opening a SIPP (as others have too) seems to be the way forward.
That's for your advice :thumbsup:

Albermarle

Just to avoid possible confusion.

You can not choose to use salary sacrifice if your employer does not offer it. Many do not.

intalex

Dazed_and_C0nfused said:

Employers must comply with NMW legislation which is why you cannot sacrifice to below this.

A related question if I may please:

What if one opts for a salary sacrifice that takes the earnings after salary sacrifice just below NMW? E.g. if one wasn't aware which payroll components are counted when assessing vs NMW.

Is it commonplace for an employer to process the entire pension contribution under net pay arrangement (incurring NI on the full amount), or would they typically split it such that just enough gets processed via net pay arrangement to get up to NMW level, whilst the rest gets processed as salary sacrifice?

Cobbler_tone

intalex said:

Dazed_and_C0nfused said:

Employers must comply with NMW legislation which is why you cannot sacrifice to below this.

A related question if I may please:

What if one opts for a salary sacrifice that takes the earnings after salary sacrifice just below NMW? E.g. if one wasn't aware which payroll components are counted when assessing vs NMW.

Is it commonplace for an employer to process the entire pension contribution under net pay arrangement (incurring NI on the full amount), or would they typically split it such that just enough gets processed via net pay arrangement to get up to NMW level, whilst the rest gets processed as salary sacrifice?

This is common in my firm. They sacrifice whatever people choose as an option (matching double up to 12%), then a couple of months later you get contacted by HR to reduce your contributions if you are taking yourself under the minimum wage. This happened to half of the old boys I manage! We are a very large and successful company!
I have an open HR ticket to ask what minimum salary they have for me as I’m looking to take a sizeable salary down to this to maximise contributions. I’m on a 37.5 hour contract, so expect them to use that.

intalex

Cobbler_tone said:
This is common in my firm. They sacrifice whatever people choose as an option (matching double up to 12%), then a couple of months later you get contacted by HR to reduce your contributions if you are taking yourself under the minimum wage. This happened to half of the old boys I manage! We are a very large and successful company!I have an open HR ticket to ask what minimum salary they have for me as I’m looking to take a sizeable salary down to this to maximise contributions. I’m on a 37.5 hour contract, so expect them to use that.

Do you mean they processed the entire amounts as net pay instead of salary sacrifice? Net pay would cost both employer and employee NI.
Or that they "exceptionally" processed it as salary sacrifice and sent a warning to reduce for future months?

Edit: My query also relates to a large successful company, have had 100% contributions processed as net pay when just 4% as net pay + 96% as salary sacrifice would have complied with NMW and minimised NI for both employee and employer... feels extremely harsh for such a small gap to NMW...

Cobbler_tone

intalex said:

Cobbler_tone said:
This is common in my firm. They sacrifice whatever people choose as an option (matching double up to 12%), then a couple of months later you get contacted by HR to reduce your contributions if you are taking yourself under the minimum wage. This happened to half of the old boys I manage! We are a very large and successful company!I have an open HR ticket to ask what minimum salary they have for me as I’m looking to take a sizeable salary down to this to maximise contributions. I’m on a 37.5 hour contract, so expect them to use that.

Do you mean they processed the entire amounts as net pay instead of salary sacrifice? Net pay would cost both employer and employee NI.
Or that they "exceptionally" processed it as salary sacrifice and sent a warning to reduce for future months?

Edit: My query also relates to a large successful company, have had 100% contributions processed as net pay when just 4% as net pay + 96% as salary sacrifice would have complied with NMW and minimised NI for both employee and employer... feels extremely harsh for such a small gap to NMW...

They processed it as salary sacrifice and then requested people adjust their contributions, advising their maximum allowed.

Cobbler_tone

With the changes to employer NI I’m surprised they haven’t sent some reminders about the benefits of contributing to the pension! Would save them a few quid.

intalex

Cobbler_tone said:

They processed it as salary sacrifice and then requested people adjust their contributions, advising their maximum allowed.

That's a very reasonable approach, especially if on a year-to-date basis earnings still remain above NMW.

Even if the requirement is for earnings to be above NMW on a monthly basis, I can't see why anyone would adopt a policy to process the entire requested pension contribution as net pay if earnings fall below NMW, when they could have split it between net pay (just enough to get to NMW) and salary sacrifice (the rest)... after all, these are 2 simple lines in payroll and easy to calculate the split (same calcs as the NMW check) and allocate between the 2 lines. I wonder if such a policy would be an internal choice or legal / regulation driven?

The cost of processing the entire amount as net pay can be quite painful for an employee, but moreover, up to 6.9 times more for the employer (will rise to up to 7.5 times from April), and it's totally unavoidable with an easy step.

Cobbler_tone

intalex said:

Cobbler_tone said:

They processed it as salary sacrifice and then requested people adjust their contributions, advising their maximum allowed.

That's a very reasonable approach, especially if on a year-to-date basis earnings still remain above NMW.

Even if the requirement is for earnings to be above NMW on a monthly basis, I can't see why anyone would adopt a policy to process the entire requested pension contribution as net pay if earnings fall below NMW, when they could have split it between net pay (just enough to get to NMW) and salary sacrifice (the rest)... after all, these are 2 simple lines in payroll and easy to calculate the split (same calcs as the NMW check) and allocate between the 2 lines. I wonder if such a policy would be an internal choice or legal / regulation driven?

The cost of processing the entire amount as net pay can be quite painful for an employee, but moreover, up to 6.9 times more for the employer (will rise to up to 7.5 times from April), and it's totally unavoidable with an easy step.

I can assure you (despite being a very large employer) our antiquated payroll systems (or the people operating them) would implode if they had to try and split the contributions. I have asked the business to incorporate 'bonus sacrifice' which is "too complex", which is ironic as during the 'cost of living crisis' they gave the option not to pay any pension contributions on bonus payments. All I asked was to do exactly that but to increase pension contributions as opposed to removing them. 
I've asked for a car lease scheme (which we can do optionally via net pay) via salary sacrifice "too complex and not all employees could afford it"
Unless it suits they have a lame get out for everything.