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The government recently published it’s response to consultation held earlier in the year into National Minimum Wage workers: Travel and subsistence expenses schemes.

Travel and subsistence expenses schemes operated by some employment businesses and umbrella companies requires temporary employees to agree that an amount of pay, which would otherwise be subject to tax and NICs, be replaced with expenses payments for travel to a temporary workplace. In this way, these schemes appear to deliver tax and NIC savings for the temporary employees. Also, employment businesses or umbrella companies save employer’s NICs on the pay which has been replaced with tax and NIC-free travel expenses. Workers paid at or near the NMW may participate in these schemes because, under current NMW legislation, travel and subsistence expenses payment count towards calculating pay for the purposes of NMW.

In the opinion of HM Treasury, which Gabem Management Limited aligns with, travel and subsistence expenses scheme (otherwise commonly considered as salary sacrifice) is not absolutely beneficial, as it appears to be, to an employee paid at the NMW threshold. HM Treasury, therefore, in February 2010, published consultation document which identified how the reduction in pay for tax and NICs purposes in return for the payment of travel expenses can adversely impact on NMW workers’ access to earnings-related contributory benefits. The document also identified how the operation of the scheme results into the employer keeping most of the tax and NIC from the salary sacrifice to the detriment of employees who are left with marginal tax exempt travel and subsistence expenses just enough to comply with the NMW.

Salary sacrifice is possible because under current NMW legislation, travel and subsistence expenses, which are allowable for tax and NICs purposes, count towards NMW pay. The consultation document therefore proposed an amendment to the NMW legislation such that that travel and subsistence expenses, which are allowable for tax and NICs purposes, do not count towards NMW pay.

At the end of the consultation period, HM Treasury decided to propose an amendment to the NMW Regulations such that subsistence and accommodation expenses allowable as deductions from earnings can no longer be used to increase pay for the purpose of meeting the statutory NMW. The proposed amendment will take effect from 1 January 2011.

As Gabem does not offer salary sacrifice scheme, the proposed change in NMW legislation will not cause a change in our operations.

Gabem welcomes this HM Treasury’s measure as salary sacrifice is not only exploitative of low-paid workers but also unconscionable as most employees paid at NMW threshold hardly realise the full import of what they are signing into under the salary sacrifice scheme.

Wole
@GabemUmbrella
20/08/2010