Is it permissible for a salary-sacrifice arrangement to reduce an employee's pay to below the level of the national minimum wage?

No. A salary sacrifice occurs when an employee gives up the right to receive part of the wages due under their contract of employment. Usually, the sacrifice is made in return for the employer's agreement to provide the employee with some form of non-cash benefit in kind, such as childcare vouchers, an employer-provided nursery place or permanent health insurance. The sacrifice is achieved by varying the employee's terms and conditions of employment relating to pay. A salary-sacrifice arrangement must not, however, reduce an employee's wages to below the level of the national minimum wage. This is because, apart from living accommodation (for which there is a daily offset), non-cash benefits in kind that are provided instead of wages do not count towards the minimum wage (reg.10 of the National Minimum Wage Regulations 2015 (SI 2015/621)). It makes no difference whether or not the benefit is taxable.

Thus, the value or notional value of benefits such as meals, luncheon vouchers, medical insurance, permanent health insurance, childcare vouchers and other childcare benefits cannot be counted towards minimum wage pay even where the benefit has been provided under a salary-sacrifice arrangement.