Salary sacrifice and staying above National Minimum Wage

intalex

Cobbler_tone said:

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.

The extra Employer NI it costs them should be more than enough incentive to split the contributions, as follows:

  Monthly NMW = £11.44 x contractual weekly hours x 52/12

If all/most employees have the same contractual weekly hours (standardised contracts), then that becomes a relatively static figure.

With a standard method to calculate monthly "earnings" for the NMW check, then as well as doing the check:

  is Monthly Earnings >= Monthly NMW?

if they find the above condition does not hold true, they can just as easily calculate the split as:

  Net Pay Portion = Monthly NMW - Monthly Earnings + £1.00 (for rounding and absolute certainty of compliance)
  Salary Sacrifice Portion = Volunteered Pension Contribution - Net Pay Portion

Split calculation uses the same parameters as the check, hence should be super easy to set up.

Now for the benefits case to implement this, the savings would be:

  Employee: Mix of 8%/2% savings in NI on the Salary Sacrifice Portion
  Employer: Flat 13.8% savings in NI on Salary Sacrifice Portion

Unless there are other intricacies that I am missing, this is proper low hanging fruit stuff that would be hard to deliberately overlook, especially when companies have to try accommodate recently announced NI rises.

Edit: I guess this is a message for the employer in my situation, yours appears quite flexible in this regard...

Hoenir

intalex said:

Cobbler_tone said:

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.

The extra Employer NI it costs them should be more than enough incentive to split the contributions,

Many payrolls re contracted out. Those in house may finite resources. Employing expensive people to perform additional administration work is a cost burden in itself. Better to focus resources on more profitable activities. 

intalex

Hoenir said:

Many payrolls re contracted out. Those in house may finite resources. Employing expensive people to perform additional administration work is a cost burden in itself. Better to focus resources on more profitable activities. 

I get this but I'm not talking about immaterial costs here, especially to the employer. If the interests of the company are important, this low incremental effort task cannot possibly be overlooked!

Albermarle

intalex said:

Hoenir said:

Many payrolls re contracted out. Those in house may finite resources. Employing expensive people to perform additional administration work is a cost burden in itself. Better to focus resources on more profitable activities. 

I get this but I'm not talking about immaterial costs here, especially to the employer. If the interests of the company are important, this low incremental effort task cannot possibly be overlooked!

In many companies, the left hand does not know what the right hand is doing.

intalex

I hear all the "more important things to worry about" sentiments, but to put it in context, if someone on a high salary like £12k per month has a perfectly normal last minute rush to max out their pension contributions annual allowance and volunteers to salary sacrifice 100% of it from December - March (4 months), but the remaining "eligible" payroll components (allowances, etc) fall short of NMW by just £500 each month, imagine the impact of not splitting the volunteered amount into £500 net pay and £11.5k salary sacrifice:

Employee NI: 8% of £1.5k + 2% of 10k = £320 per month or £1,280 for the 4 months
Employer NI: 13.8% of £11.5k = £1,587 per month or £6,348 for the 4 months

Now imagine several employees doing this and ask yourself if it is defensible to ignore something like this, especially considering that the solution to avoid these losses is quite simple.

Marcon

Dazed_and_C0nfused said:

Sarahspangles said:

Dazed_and_C0nfused said:

Sarahspangles said:

An employer can’t salary sacrifice so they’re paying less than National Minimum Wage as NMW can be enforced.

And if they somehow found a way to do it, meaning you didn’t earn enough to pay NI contributions, you’d potentially lose out on State Pension.

You don't need to pay NI to get a qualifying year though, you need to earn £123/week (the lower earnings limit) for a week to count.  Which is well under the limit for paying NI.

If your employer has allowed you to salsac all of your income, how does HMRC know you earned £123/week?

From the Real Time Information (RTI) reports the employer has to file with HMRC.

....except the RTI report would show zero pay if all income had been salary sacrificed.