National Minimum Wage Increases: Is Your Salary Exchange Scheme Still Compliant?

Each April brings changes to the National Minimum Wage (NMW) and National Living Wage, increasing payroll costs for employers across the UK. For care providers, where staffing represents a significant proportion of operational spend, these changes can have a direct financial impact.

However, one area that is often overlooked is how these increases affect salary exchange (or salary sacrifice) arrangements. If not reviewed properly, previously compliant schemes can quickly become non-compliant.

What Is Salary Exchange and Why Does It Matter?

Salary exchange allows employees to give up part of their salary in return for benefits such as increased pension contributions. When structured correctly, it can provide tax efficiencies for both the employer and employee.

However, there is a critical rule. After salary exchange has been applied, an employee’s pay must not fall below the National Minimum Wage.

Why National Minimum Wage Increases Create Risk

When minimum wage thresholds increase, existing salary exchange arrangements may no longer meet legal requirements. This is particularly relevant for lower-paid roles, which are common across the care sector.

Even if a scheme was compliant previously, annual changes can create unintended breaches if calculations are not updated.

Who Is Responsible for Compliance?

Responsibility always sits with the employer. Even where payroll or benefits are managed by an external provider, care providers must ensure that all arrangements comply with current legislation.

This includes ensuring minimum wage thresholds are met in each pay reference period and that accurate records are maintained.

What Are the Risks of Getting It Wrong?

Failing to review salary exchange arrangements can lead to:

• Back pay obligations for affected employees
• Financial penalties from HMRC
• Increased administrative and payroll burden
• Reputational damage for the organisation

In many cases, these issues arise simply because schemes have not been reviewed at the right time.

What Should Care Providers Be Doing Now?

Care providers should take a proactive approach by:

• Reviewing salary exchange calculations following wage increases
• Confirming no employee falls below minimum wage thresholds
• Ensuring payroll systems reflect current legislation
• Keeping clear records of compliance checks

Is There Also an Opportunity Here?

While this is a compliance requirement, it is also an opportunity to review whether your salary exchange schemes are delivering maximum value.

When structured correctly, they can help offset rising payroll costs while supporting employee benefits and retention.

How Quality Care Group Supports Care Providers

At Quality Care Group, we provide practical advice and access to trusted partners to help care providers manage compliance and identify opportunities within their business operations.

If you would like to review your salary exchange arrangements or ensure compliance following the latest wage increases, please contact us.