Policy and research technical lead The Chartered Institute of Payroll Professionals
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National Minimum Wage regulations to be amended

Samantha Mann looks at the government's response to the BEIS consultation on salaried hours work and salary sacrifice, which seeks to bring about change to the NMW regulations from April 2020.

26th Feb 2020
Policy and research technical lead The Chartered Institute of Payroll Professionals
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Minimum wage

The consultation that closed in March 2019 looked at “a limited number of instances” that employers had previously raised as problem areas during the Good Work Plan consultations and the response that is now provided gives an overview of how the government intend to address these concerns.

The short timescale, in which the changes are being delivered, demonstrates well that the government is wasting no time in delivering on its ambition, for “the UK to be the best place to work and grow a business.”

Here is an overview of how the government is addressing the issues raised in the consultation.

Salaried hours work payment cycles

Regulation 21(5) of the National Minimum Wage (NMW) regulations limits a contractual pay frequency for salaried hours work to weekly or monthly. However, as we know, there are more pay frequencies than weekly and monthly and it is not uncommon for employers to operate fortnightly or four-weekly pay frequencies, particularly in the retail sector.

Regulations will be amended to allow additional pay frequencies to be applied for salaried hours workers who are paid in equal instalments. This change will not reduce the protections afforded to workers but should reduce the number of instances where employers are found to be non-compliant due to a misclassification of pay type.

Calculation year for salaried hours work

Salaried hours work is based on a stated annual amount of hours to be worked in a year and the calculation period as detailed in Regulation 24 means that the year currently begins by reference to the start date of the worker.

The employer is required to monitor whether the annual number of hours have been exceeded and, if so, pay each excess hour at the appropriate rate of NMW (as a minimum).

Employers may have a significant number of calculation years to monitor, a burden for all employers, but particularly large employers. The consultation asked whether there should be different calculation year defined and it proposed a tax year, a calendar year or a year set at the employer’s preference.

As a result of feedback, regulations will be amended to permit a calculation year to be set at the discretion of the employer. Where an employer fails to define an alternative calculation year, the default will be, as now, set in Regulation 24.

The impact of pay premia on salaried hours work

NMW regulations will be amended to enable employers to pay premia to workers holding salaried hours contracts. This adjustment, however, will not result in premium payments being included within the calculation of NMW.

The aim is to reduce the frequency of accidental non-compliance and also, encourage employers to consider paying premium rates, for example for a bank holiday. Evidence submitted during the consultation suggested that employers were holding back from making these payments, as currently only a performance bonus may be paid on top of the annual hours that are paid within salaried hours pay.

Salary sacrifice, pay deductions and compliance

A salary sacrifice will see an employee contractually give up the right to a higher cash sum in return for a lower cash payment and a non-cash benefit. Common examples include pension, childcare vouchers and bicycles.

Savings in income tax and NIC liabilities benefit the employees who voluntarily enter into such an arrangement. However, employees whose pay sits at or near the rate of NMW/NLW cannot enter such a scheme if by doing so it will reduce their pay to below their rate of NMW.

The consultation gave hope that there might be a chink of light on the horizon in this space, but no change is to be made to the regulations due to the ongoing fear of abuse. It is proposed that improved education materials could help employers to avoid non-compliance, due to the use of salary sacrifice and deductions, which will see the introduction of:

  • Accessible overview guidance to help any employer understand the most relevant NMW rules for their business
  • A series of digestible thematic guides covering specific NMW compliance issues, including pay deductions and uniform policy
  • Detailed and comprehensive NMW guidance for all employers.

In advance of the publication of new guidance, BEIS has brought together representative from employer groups, unions and NMW experts in a ‘Guidance Readership Panel’ to review early draft material.

Naming scheme to recommence

In response to recommendations by the Director of Labour Market Enforcement (DLME) the BEIS naming scheme was paused to enable a review to be carried out to explore how it could be improved. The review is now complete and the Naming scheme is set to recommence ‘shortly’.

The scheme will see employers who are issued with a Notice of Underpayment (NoU) for arrears in excess of £500 being considered for Naming. The revised scheme will be published alongside quarterly bulletins that will provide anonymised case studies to illustrate how employers breached the regulations and how these mistakes could be avoided by other employers.

For those who have been issued with a NoU, a Labour Market Undertakings or Order in the previous six years, the arrears limit of £100 will remain in force.

Enforcement and penalties

Additional support for employers who operate salary sacrifice or deduction schemes will be available via Acas (0300 123 1190) who will refer to HMRC to provide support via a telephone appointment.

Eligibility criteria will be introduced for employers who breach the rules relating to salary sacrifice and pay deductions. If met, the employer will not face penalties or the risk of naming and will only be required to repay the arrears.

The strict criteria is:

  • That the deduction is not made as respects the worker’s expenditure in connection with the employment
  • The worker has consented to the reduction or deduction
  • The worker has received the relevant goods, services or benefits in full compliance with the relevant arrangements.

Standard enforcement will continue in all other instances which include penalties of up to 200% of arrears. Labour Market Undertakings and Orders or criminal prosecutions, where appropriate.

New Small Business Project

A national pilot has been running to help to promote good compliance at the earliest stage for employers who are approximately 12 – 24 months old and employ fewer than 20 employees. To date, HMRC has carried out 300 face to face visits and written out to 15,000 new small businesses. The pilot will be reviewed later in 2020 to see whether this process could become part of the ‘business as usual’ process.


When the announcement from BEIS was published it was welcome news, although as with so much regulatory and operational change ‘the proof of the pudding is in the eating’. There seem to be many areas that could continue to offer up confusion to employers as well to HM Courts and Tribunals.

As I write, we await the outcome of a Supreme Court hearing on the thorny subject of sleep time, which oddly enough is an area where the regulations are deceptively clear – but this once again reminds us that the subject of NMW will never get old.


Replies (1)

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By neiltonks
27th Feb 2020 11:09

It's disappointing that there's no change on Salary Sacrifice. This perpetuates the absurd anomaly that means many of the the lowest-paid employees are unable to benefit from an NI saving on their auto-enrolment pension contributions, which is available to everyone else.

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