Government reconsidering minimum wage rules as Iceland faces £21m bill

7 Jan 2019 By Francis Churchill

Retailer could be billed for underpayment if voluntary salary sacrifice scheme pushed salaries below minimum

Business secretary Greg Clark wrote to retailers pledging to review national minimum wage (NMW) regulations weeks before it emerged retailer Iceland may have become the latest business to fall foul of the rules, it has been reported.

In a letter sent to the British Retail Consortium (BRC) in mid-December, and reported this week by The Times, Clark said he would consider changes to the law “when evidence shows that rules unnecessarily penalise employers”.

The letter was sent the same day the government launched a consultation looking at NMW regulations around salary sacrifice schemes, with a view to making changes in situations where employers are being unfairly penalised without sufficient benefit or protection for workers as a result.

Last week, it was revealed Iceland could be facing a bill for at least £21m of underpaid wages because it may have broken minimum wage regulations with just such a salary sacrifice scheme.

Iceland has confirmed to People Management that HM Revenue and Customs (HMRC) could bill the firm for underpayment because its Christmas Club scheme – a voluntary programme aimed at helping employees save for the festive season – may have pushed workers’ pay below the minimum wage.

Under the scheme, sums are deducted from participating employees’ wages and paid back to them at a later date.

Iceland said the money from the scheme was kept in a ring-fenced bank account managed by independent trustees, and employees could reclaim their cash at any time. In total, the firm said it had saved and repaid more than £3.7m of wages in the year to November 2018.

Iceland said HMRC was arguing this could amount to underpayment if employees’ pay was pushed below the minimum wage after the deductions.

HMRC declined to comment specifically on the Iceland case, but a spokesperson said: “The rules are very clear and have been put in place to protect workers. The money that workers receive in their pay packets must be at least the national minimum wage with no exceptions.

“Where employers want to offer benefits to workers – including with Christmas savings schemes – they can easily establish a scheme in line with the law by getting workers to pay into that scheme after they’ve been paid rather than deducting the money beforehand.”

Sir Malcolm Walker, Iceland founder and chief executive, described the dispute as “madness”.

According to Iceland, the firm’s use of salary sacrifice for its Christmas Club was being probed by HMRC as early as April 2017. It said HMRC had not yet formally issued the firm with a bill.

Iceland is not the first major retailer to fall foul of NMW rules. In February 2017, Debenhams was fined £63,000 after it topped the government’s list of businesses that failed to pay the minimum wage. At the time, Debenhams blamed a payroll error.

In its consultation document, the government admitted feedback had found businesses had been withdrawing salary sacrifice schemes to avoid non-compliance with NMW rules, and in some cases this had led to low-paid workers not being offered the same packages as those earning significantly more than the minimum wage.

Tom Ironside, director of business and regulation at the BRC, said retailers were “working hard” to raise pay across the industry, but that NMW regulations “must support the flexibility that colleagues want and retailers are striving to offer”.

“It would be disappointing for firms to be penalised for running schemes that benefit their colleagues, and it is critical that employers are given the right tools and guidance to comply effectively with the legislation,” he said.

The government’s consultation on NMW and salary sacrifice schemes is open for submissions until 1 March 2019.

HR Assistant (apprentice)

HR Assistant (apprentice)



Turley Associates

Head of Organisational Development & Talent

Head of Organisational Development & Talent

Agile - Wirral, Merseyside

£67,558 to £70,647

Wirral Council

Group HR Manager

Group HR Manager

Greenwich, London but with opportunity to work flexibly from home.

£40,000 to £50,000 per annum

Oxford International Education and Travel Ltd

View More Jobs

Explore related articles