Salary sacrifice: A Legal Perspective
Navigating the legal minefield of salary sacrifice schemes
Jodie Hill, solicitor at Milners Law, discusses the possible legal grey areas that may appear once some sacrifice schemes are scrapped.
With the Government planning on axing many existing salary sacrifice schemes, confusions may arise over what the employer and employee is legally entitled to do and/or have as of April 2017. For those employees that are already enrolled on a salary sacrifice scheme, questions may arise over whether there will be a fundamental breach of contract once it is scrapped or if workers can legally demand a pay rise considering they will be losing out financially.
By carefully considering the questions employees may have, business leaders can be better equipped in informing staff of their rights to help mitigate against any potential backlash.
Can an employer legally remove a soon-to-be-axed salary sacrifice scheme?
As this is a change that is being imposed by the Government and not by the business, employers are in their legal right to remove salary sacrifice schemes. Even if an employee has a contractual entitlement to their current scheme, removing it will not be a fundamental breach of contract as it is keeping in line with the Government’s agenda.
Can an employee take legal action if their salary sacrifice scheme is scrapped?
As the employer is taking instruction from the Government as opposed to a personal decision, employees won’t be able to take court action against the business. Instead, what employers might experience is an increase in the number of staff raising a grievance – an act that will be completely in their right – as they may have concerns or complaints over the new terms and conditions of their contract.
To keep morale high amongst employees, employers should ensure they have the necessary procedures and practices in place to resolve grievances efficiently and fairly. If a worker does raise a concern, management should at first try to resolve it informally. In cases where that does not work though, a formal meeting should be set up to allow employers to explain the changes and how it will personally affect the individual.
Can an employee legally demand a pay rise if the removal of a scheme significantly affects their pay packet?
Although employees may feel that they are financially missing out, employers are not legally obliged to offer pay rises to compensate the difference. In this instance, it is imperative that business leaders consult with their staff to ensure they are fully aware of how the changes will personally affect their pay packet. Non-cash initiatives, such as flexible working or early finishes, could be a substitute which doesn’t have huge cost implications for a business but still offers a perk to their workers.
Whilst businesses do not have a huge legal responsibility in regards to scrapped salary schemes, it is essential that the issue is approached sensitively so that staff feel respected.