From 1 January 2011, the National Minimum Wage (NMW) Regulations will be changed in order to close a loophole whereby some Employment Businesses and umbrella companies operate travel and subsistence schemes for temporary workers in order to save on tax and National Insurance Contributions (NICs).
The schemes work by creating a single employment contract for each temporary worker so as to convert what would otherwise be a series of permanent workplaces into temporary workplaces, for which tax relief on travel and subsistence expenses is available. Workers agree to sacrifice a part of their gross pay, which would otherwise be subject to tax and NICs, in return for payments for travel and subsistence expenses. As well as tax and NICs savings for employees, the employer saves on NICs.
Currently, the expenses paid for travel to a temporary workplace can be taken into account when calculating whether or not a worker is being paid the NMW. However, where workers are paid at or near the NMW level, the reduction in their pay for tax and NICs purposes can adversely affect their right to earnings-related contributory benefits.
The Government has decided to tackle the problem by stopping payments made into travel and subsistence tax relief schemes from counting towards the NMW. This solution targets the issue of NMW workers participating in such schemes without affecting other workers, as it does not impact on the tax and NICs treatment of travel and subsistence expenses generally.