HMRC Strict Warning to State Pensioners: Workers Who enrolled in salary sacrifice schemes must check their Payslip

HMRC Strict Warning to State Pensioners: HMRC has issued a warning to thousands of workers enrolled in salary sacrifice schemes, reminding employers that deductions must not reduce an employee’s earnings below the National Minimum Wage (NMW). The reminder follows a query from a taxpayer on social media, who raised concerns after reviewing their payslip.

What is Salary Sacrifice?

A salary sacrifice arrangement is an agreement between an employer and an employee where the employee gives up a portion of their salary in exchange for non-cash benefits such as:

• Pension contributions
• Cycle-to-work schemes
• Childcare vouchers
• Electric car schemes

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While this can provide tax and National Insurance savings, it must be managed carefully to comply with minimum wage laws.

What Employers Must Do

HMRC has made it clear that:

• Salary sacrifice must not reduce cash earnings below the National Minimum Wage.
• Employers must cap deductions to ensure compliance.
• Employment contracts must be updated whenever an employee opts in or out of a salary sacrifice scheme.
• If an employee’s financial situation changes, their salary sacrifice terms may need to be adjusted.

Employers must also ensure that PAYE tax and National Insurance contributions are correctly deducted from employees’ salaries.

Salary Sacrifice and Pension Contributions

One key concern raised was whether employers must still comply with the 8% minimum pension contribution requirement if salary sacrifice takes an employee’s earnings close to the NMW. HMRC advises that much depends on the specific scheme arrangements, and employees should check with their employer to ensure their contributions remain valid.

Impact on Tax and Benefits

Salary sacrifice arrangements can affect:

• Tax and National Insurance contributions
• Statutory payments (e.g., maternity pay)
• State Pension contributions
• Mortgage applications (as reported income is lower)

Employers and employees must carefully review their agreements to avoid unexpected financial implications.

Final Advice for Employees

• Check your payslip regularly to ensure your salary does not fall below NMW.
• Speak to your employer if you’re unsure how salary sacrifice affects your benefits or tax.
• Understand your rights, especially if you’re considering opting in or out of a scheme.

FAQ’s

What is a salary sacrifice arrangement?

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A salary sacrifice arrangement is an agreement between an employer and an employee where part of the employee’s salary is exchanged for non-cash benefits, such as pension contributions, childcare vouchers, or cycle-to-work schemes.

Can salary sacrifice reduce my earnings below the National Minimum Wage?

No. HMRC requires employers to cap salary sacrifice deductions to ensure an employee’s earnings do not fall below the National Minimum Wage.

Do employers still have to meet pension contribution requirements under salary sacrifice?

Yes, but specific arrangements vary. Employers must ensure compliance with the minimum pension contribution of 8% in total. Employees should check with their employer for details.

How does salary sacrifice affect tax and National Insurance contributions?

Salary sacrifice can reduce taxable income, lowering tax and National Insurance contributions. However, it may also impact statutory benefits and State Pension calculations.

Can I opt in or out of a salary sacrifice scheme?

Yes, but any changes require updating your employment contract. Employers must ensure the agreement is clear about salary and non-cash benefits.

How can salary sacrifice affect mortgage applications?

Since salary sacrifice lowers reported earnings, it may reduce the amount you can borrow for a mortgage. Lenders consider your adjusted salary when assessing affordability.

What should I do if my payslip shows my salary is below the National Minimum Wage?

Contact your employer immediately. They must adjust salary sacrifice deductions to comply with minimum wage laws.

Shubham Kansal

Shubham Kansal is a tech-freak self-motivated professional who thrives on innovation and overcoming challenges. He is working on Tech Zimo for the last 4 years and went through writing for a lot of big media houses. Writing is her all-time favorite job. Know more about him on facebook,