New Minimum Wage rules came into effect on 1 January 2011, making schemes where some travel expenses counted towards the National Minimum Wage (NMW) ineffective.
The practice popular with employment agencies, often involves salary sacrifice schemes: a worker sacrifices part of their contractual pay, but is paid a sum for travel & subsistence to a temporary place of work. This type of arrangement provides benefits to both the agency (avoiding NIC) and the worker (the expenses being deductible for tax and qualifying for NIC relief).
The Cordant Group, a manpower agency which employs around 30,000 staff went to the High Court to challenge the new changes late last year, but was unsuccessful. The court confirms the Regulations that:
“any money payments paid by the employer to the worker in the pay reference period in respect of travelling expenses that are allowed as deductions from earnings under section 338 of the Income Tax (Earnings and Pensions) Act 2003” will now not count towards meeting the obligation to pay the national minimum wage.
HM Revenue & Customs (HMRC) says that it is aware that a number of travel schemes and umbrella business models are being marketed which claim to continue to provide savings for the employer and be compliant with the NMW from 1 January 2011. These include:
- Paying subsistence expenses rather than travelling expenses;
- Classifying workers as directors;
- “Holiday Pay adjustments”; and
- Under recording hours worked
HMRC says that none of these models, including those listed above, would comply with the requirements of NMW legislation for workers paid at, or close to, the NMW.
Links
Section 338, Income Tax (Earnings and Pensions) Act 2003
The National Minimum Wage (Amendment) (No.2) Regulations 2010
The Cordant Group Judgment – EWHC 3442 (Admin) on 30 December 2010
For specific employment law advice, including amending contracts to reflect this change, contact Employment Law Clinic.
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