On 1 April 2024, the National Living Wage (NLW) (the legal minimum for workers over 21 and over) increased to £11.44 per hour.

In the last two years a temporary uplift has been made to the bottom point of the NHS pay spine to account for the annual rise. However, this year there will be no temporary uplift. The NHS Pay Review Body is due to submit its report to HM Government in May, making recommendations for NHS pay for 2024/25.

As a consequence of the recent NLW increase some workers who benefit from salary sacrifice or net deduction arrangements could now be paid less than the NLW.

Employers could find themselves in breach of minimum wage legislation and risk action being taken against them by HMRC which can include:

  • issuing notices of underpayment
  • name and shaming employers who do not comply
  • fines of up to 200% of the underpayment up to a maximum of £20,000 per worker
  • criminal sanctions.

Addressing the issue

Employers should assess whether their organisation has an issue by

  • considering the extent of their salary sacrifice/net deduction arrangements
  • considering which pay bands are impacted (it will not necessarily be the lowest band as the level of the deduction will vary from individual to individual)
  • determine what action they will take to manage the issue and risks.

There are a number of options that are open to employers. The pros and cons of each option should be considered.

Which option an employer chooses will depend (among other things) on:

  • how many workers are impacted
  • the extent of the issue
  • factors such as the tax risk, the likely administrative burden, the time it will take to implement any necessary changes, the cost, the impact on existing agreements and arrangements, the risk of grievances and claims, and the potential impact on employee relations.

The date of the general election is uncertain. A decision on pay may not be reached before the general election. The possibility of further delay should therefore be factored into decision making as what seems like a short term issue could go on for longer than anticipated.

How Capsticks can help

Capsticks has significant experience supporting employers on a wide variety of pay issues. We’ll keep you updated on the above developments as they progress, or further information is released.

To discuss the risks and what option is best for your organisation, please contact Sarah Gill, Alistair Kernohan or Chloe Edwards.