As part of the October 2025 shaming list of employers who have been named and fined for National Minimum Wage regulations breaches, 11 of the 491 related to various types of deduction from wages which reduce the average pay rate below National Minimum Wage rates which act as minimum legal amounts to pay for time worked.
Salary sacrifice is not part of the naming list!
Salary sacrifice schemes are often misunderstood. Their legal construction can be confusing. Who has paid what and why, and is the result a free benefit in kind.
Not only is the tax and NI position confusing, the implications on National Minimum Wage (NMW) can be even more confusing,
Any sacrifice amount (including flex bens or smart arrangements) reduce NMW pay.
For some years, employers who have breached NMW due to salary sacrifices alone have been removed and are not named and shamed. However, any underpayment found in relation to employees and workers has to be corrected and paid by the employer.
Deductions for loans, pension and share schemes are permitted
Genuine deductions for the the repayment of loans, the real employee contribution for pensions and schemes for the purchase of securities of the employer are all OK.
However, salary sacrifice pensions are not employee contributions but a pay cut to receive higher employer contributions,
Deductions to third parties
As a general principle, voluntary deductions from pay to a third party, not to the employer, do not impact National Minimum Wage rates.
So Union fees have no impact, and purchase of goods and services to suppliers not related to the employer are also good.
Deductions for the benefit of the employer
So what have these employers been caught doing?
Any deduction which is not on the permitted list that is considered for the benefit of the employer will reduce NMW pay.
So some deductions from wages are not OK. Deducting costs for work related equipment, stock or till shortage recovery, meals, parking.
Training
Some employers tie their employees by putting in contractual clauses for the repayment of working required training, often these are applied to the final pay,ent of wages.
However, where training is required for work purposes, such deductions will reduce NMW pay and may cause a breach.
Employer managed savings schemes
A controversial area that has been in the news is around savings clubs. These are seen by employees and employers as a benefit for the employer in preparation for such events as Christmas. However, if the money is held and controlled by the employer, then the amounts saved will reduce NMW pay for the relevant NMW pay reference period even if the money is to be returned at a later point which does not fall into the relevant PRP.
The way around this trap is to ensure that the savings scheme is not keeping the money in the employers company bank account or in the companies direct control.
Check and verify
If you are deducting amounts of your employees and want to ensure that your are not, as a result, breaching NMW requirements, check and verify each deduction. The deduction is not an issue if the resulting rate paid for NMW purposes is at or above the individuals NMW rate.
- Are you deducting the Attachment or Arrestment £1 admin fee?
- Is the deduction a voluntary deduction to a third party?
- Is it a permitted deduction such as genuine employee pension contributions or employer related securities?
- Is it attempting to recover amounts from those who are leaving
- Or is it for the benefit of the employer and needs to be checked when deducted that pay does not breach NMW requirements.
Remember that salary sacrifice reductions always reduce NMW pay. Flipping to a deduction does not prevent NMW breach as the deduction is likely to be for the benefit of the employer paying for an employer provided benefit in kind.
Look at each deduction to Check and Verify
PAYadvice.UK 21/19/2025