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24th December 2010: New travel expense rules may hit some umbrella companies
Travel Expenses/Salary Sacrifice Scheme illegal for workers paid at or near the National Minimum Wage (NMW) from 1st January 2011
Travel expenses allowable as deductions from earnings can no longer be used to increase NMW pay for the purpose of meeting the statutory NMW for workers paid at the NMW threshold with effect from 1 January 2011.
The is in line with an amendment to The National Minimum Wage (Amendment) (No.2) Regulations 2010 arising from HMRC’s response to the consultation held earlier in the year into travel and subsistence expenses schemes.
Travel and subsistence expenses/salary sacrifice schemes operated by some umbrella companies and employment businesses requires contract workers to agree that an amount of pay, which would otherwise be subject to tax and NICs, be replaced with payment of expenses for travel to a temporary workplace. Workers paid at or near the NMW may participate in these schemes because current NMW legislation contains a loophole under which travel and subsistence expenses payment count towards calculating pay for the purposes of NMW.
In Gabem’s view the reduction in pay for tax and NICs purposes in return for the payment of travel expenses could adversely impact on workers paid at the NMW access to earnings-related contributory benefits. When such workers come nearer to retirement they may have to 'top up' their social security contributions (NIC) if they are below the threshold HMRC require to pay out state pension.
Gabem does not and never has run a Travel Expenses/Salary Sacrifice Scheme for our umbrella company operatives. The change brought about by The National Minimum Wage (Amendment) (No.2) Regulations 2010 will therefore not cause a change in our operations as we are already fully compliant with the new legislation.
NEXT STEP
Umbrella companies and employment businesses that currently operate salary sacrifice scheme for workers paid at the NMW threshold should change their calculation and communicate with NMW workers about the change in legislation. If they continue to use expenses against NMW after 31st December 2010 they could be in breach of the new legislation and their NMW workers should look at moving to another provider.
Please email us, if you want to discuss the changes in more detail.
24/12/2010
