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 involved salary sacrifice schemes: a worker sacrificed part of their contractual pay, but was paid a sum for travel & subsistence to a temporary place of work. This type of arrangement provided 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 changes in 2010, but was unsuccessful. The court confirmed 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) said that it was aware that a number of travel schemes and umbrella business models were being marketed which claim to continue to provide savings for the employer and be compliant with the NMW from 1 January 2011. These included:

  • Paying subsistence expenses rather than travelling expenses;
  • Classifying workers as directors;
  • “Holiday Pay adjustments”; and
  • Under recording hours worked

HMRC said 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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