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Small employers urged to take action to prepare for Living Wage compliance
Many employers already pay in excess of the voluntary Living Wage

With the introduction of the National Living Wage less than three months away, many employers need to take urgent action to ensure full compliance with this new law, research shows.

The new requirement sets a higher minimum income level for employees aged over 25. This is generally understood, yet the interaction with the use of Salary Sacrifice in employee benefits provision is less clear. This could result in employers inadvertently breaching the new minimum income level.

A survey by Jelf Employee Benefits finds that almost four in ten employers (39 per cent) are unaware of this issue, with a further 19 per cent aware of the possible implications of using Salary Sacrifice, but yet to review this to ensure compliance.

Only 9 per cent of respondents have reviewed and resolved any problems in this respect.

Salary Sacrifice is a widely employed and hugely tax-efficient mechanism of funding many employee benefit packages. The 'sacrificed' tranche of salary avoids both income tax and national insurance, and is typically used to fund a benefits premium or contribution.

It is now clear that such a sacrifice cannot reduce an employee’s income below the new National Living Wage.

Commenting for Jelf Employee Benefits, Steve Herbert says, 'These findings are more than worrying; the income level and date of introduction were both established in the Summer Budget statement and we would therefore have expected employers to be taking action to ensure compliance with this new edict.'

While any sacrifice should be reviewed, Jelf Employee Benefits particularly urges vigilance by employers who use this mechanism for more than one benefit. 

Herbert continues, 'Some employees have a number of sacrifices in place for different benefits, and the cumulative impact of this may unexpectedly place employees close to the new legal minimum income of £7.20 per hour for the over 25s.

'With time now of the essence, we would urge employers to act now or risk breaching the new rules.'

The survey also finds a good level of employer support for the voluntary Living Wage established by the Living Wage Foundation, with 16 per cent of employers supporting this ideal at the significantly higher levels of £8.25 per hour nationally, and £9.40 per hour within London. 

Herbert adds, 'Many employers already pay in excess of the voluntary Living Wage, so we would encourage more to sign up to this benchmark. Paying the Living Wage significantly helps employees and their families, and this achievement will be better recognised by workers and potential recruits if formal certification is achieved.

'We hope that the increased media noise around the National Living Wage also results in many more employers applying for voluntary Living Wage accreditation.'

Further reading on Living Wage

See also: SMEs urged to wage war against cartels

Related topics: Managing staff

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