Technical / Call for salary sacrifice reviews

From April, the new national living wage was introduced for workers aged 25 and over. The rate of £7.20 per hour equates to an annual salary of £14,078, which is under the lowest salaries paid under Agenda for Change of £15,251 – pay point 2 of both band 1 and band 2.

For those aged between 24 and 16, the various national minimum wage rates apply.

Many trusts have introduced salary sacrifice schemes for employees – where the employees give up part of their cash earnings for non-cash benefits such as childcare vouchers or car hire schemes. It is these reduced earnings that would be judged for compliance against the national living wage requirements.

Although there appears to be a reasonable gap between the effective annual national minimum wage salary and the lowest Agenda for Change rates, it actually equates to less than £100 a month. With staff theoretically able to take up to £243 per month in childcare vouchers under a salary sacrifice scheme, there could be issues in some cases.

However, the potential problem goes further than workers employing salary sacrifice to the maximum level. It is also a potential issue for part-time workers – where the salary sacrifice deduction can have a greater impact, particularly if an employee reduces their hours after entering a scheme.

Compliance is also judged on a period-by-period basis. So while annual pay might average out above the required minimum rate, if it drops below the line for even one period then an employer could have problems – even with staff on higher pay rates.

The indications that the national living wage will rise to £9 per hour by 2020 – well ahead of the 1% rises for public pay in general – mean this could become an increasing issue for some employers – especially where employees have already entered, for example, a three-year car contract scheme.

The HFMA Accounting and Standards Committee has heard about one case where an NHS body has already had to stop a payroll payment at the last minute and reissue it without the salary sacrifice to ensure it did not breach the legislation. In this case, the system controls picked up the problem and action could be taken. But it is not clear if all NHS bodies’ systems have similar controls.

NHS Employers has called on all employers operating salary sacrifice schemes to ‘review their arrangements to ensure compliance with the new minimum income requirements.’
On an ongoing basis, it suggests this should include monitoring:

• When an employee joins a salary sacrifice arrangement for the first time
• Where a new salary sacrifice scheme is introduced
• Each April when the national living wage rates are reviewed
• Each October when the national minimum wage rates are reviewed.

The consequences of non-compliance are significant. If a trust pays an employee below the new national living wage, it would be required to make up any shortfall and may be fined up to £20,000 by Revenue and Customs for each non-compliant employee. Perhaps even more damaging is the prospect of being named and shamed for such a breach and facing what is likely to be intense media scrutiny.

The Department of Health has issued the 2016/17 Group accounting manual (GAM) for consultation. Most of the manual is now applicable to all NHS bodies, the exception being Chapter 2 on the annual report. NHS Improvement will continue to issue separate guidance for foundation trusts on this area.

With no new accounting or reporting standards for 2016/17, the consultation focuses on how previously separate guidance is being brought together. Of particular interest to foundation trusts are changes in relation to:

• Directors’ remuneration disclosures made under s412 of the Companies Act
• The use of a capitalisation threshold higher than £5,000
• The use of a market rate to measure fair value of future cash flows from financial instruments.

There are also changes to the guidance on the parliamentary accountability and audit report part of the annual report. 

Consultation lasts until 1 July and the HFMA will be submitting a response.
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