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NMW and travel and subsistence expenses schemes
Friday, December 31st, 2010
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Alongside the 2009 Pre-Budget Report, the Government announced that it intended to address the problem of potentially exploitative salary sacrifice arrangements that are implemented for some temporary workers paid at or near the National Minimum Wage (NMW). On 11 February 2010, HM Treasury published a consultation document, entitled National Minimum Wage workers: Travel and subsistence expenses schemes, which explained the means by which NMW workers should be protected.
The normal situation for employees whose pay is at or just above the NMW is that they are unable to sacrifice salary as this would reduce their hourly rate to below the NMW rate. As defined in the almost incomprehensible rules in the NMW Regulations for what does or does not count towards the NMW, expenses paid “in connection” with the worker’s employment do not count towards the NMW. The term “in connection” is not defined and it is interpreted by HMRC as applying to the reimbursement of costs incurred by the worker in performance of the worker’s duties. However, the time spent travelling to a temporary place of work and the costs associated with such travel are not treated as being “in connection” with the employment. As a result, if the employer reimburses those costs, the payments, as well as enjoying tax and NICs relief, do count towards the NMW.
In some cases, HMRC has seen salary sacrifices operate where employees of some umbrella companies and temp agencies sacrifice their salary in return for an equivalent value of travel expenses but the employer does not pay the travel expenses in full, or deducts an administration charge. Such an abuse of the tax and NICs relief arrangements is just one of the reasons why HM Treasury, in the consultation document, proposed to amend the NMW rules so that expenses paid to an employee for the cost of travel from home to a temporary workplace along with associated subsistence costs would not count as pay for NMW purposes.
This change to the NMW rules has been given effect from the first pay reference period starting on or after 1 January 2011 by means of amendment Regulations. They provide that, for NMW purposes, an employee’s earnings must be reduced by “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”.
This amendment does not affect the tax relief provisions for payments of business expenses and does not prevent the use of salary sacrifice schemes that take advantage of the tax relief. It ensures, however, that lower-paid employees receive at least the NMW rate before the addition of any expenses payments.
Further information:
The National Minimum Wage (Amendment) (No.2) Regulations 2010
Explanatory Memorandum to the National Minimum Wage (Amendment) (No.2) Regulations 2010
