As every year, April is a pressure point for employers. National Minimum Wage (NMW) and National Living Wage increases take effect, payroll costs rise, and many businesses are forced to revisit budgets. In the middle of that, it’s easy for the more technical issues to be overlooked, especially where schemes and arrangements have been in place for a while.
One area that needs careful attention is salary exchange (also known as salary sacrifice).
If you operate any salary exchange schemes, April’s Minimum Wage increase is an important moment to check that your arrangements still comply with the rules.
Why does the minimum wage increase matter for salary exchange?
Salary exchange is a valuable way of funding pension contributions. Employees give up part of their salary in return for an increased employer pension contribution, which can result in tax savings for both employee and employer.
However, there is a clear requirement for every salary exchange arrangement. After the exchange has been applied (and salary has therefore been reduced), an employee’s pay must not fall below the National Minimum Wage. With the NMW increasing annually, it’s often a risk area for employers operating this type of employee benefit.
More than just a payroll check
Pension and National Minimum Wage compliance remains the employer’s responsibility, which includes ensuring salary exchange schemes remain compliant, even if advice/guidance is given from an outsourced provider.
To ensure compliance, you need to be confident that:
✅ Salary exchange has been recalculated following wage increases
✅ Employees are not breaching Minimum Wage thresholds
✅ National Minimum Wage is met in each pay reference period
✅ Payroll processes and calculations reflect current legislation
✅ You can prove checks were completed if challenged or audited
April is a natural point to carry out a review that captures this information. It reduces the risk of issues being picked up later through HMRC enquiries.
The risk of doing nothing
Where salary exchange is not reviewed following a Minimum Wage increase, employers can unintentionally find themselves in breach of National Minimum Wage rules.
As a result, this can lead to back pay requirements, increased HR/payroll administration, and, crucially, costly fines from HMRC or reputational damage for the organisation, which of course we all want to avoid!
For growing SMEs, there’s also the impact of valuable time and resources being spent on fixing NMW issues that could have been adjusted easily at the right moment.
A point to stress here is that most employers want to do the right thing; the challenge is usually knowing when a technical review is needed.
Additional salary exchange opportunities
While this stems from a compliance perspective, there is also a strategic opportunity here. It may also be the perfect time to review your existing salary exchange schemes holistically and explore if they are working for you in the right way.
During a time when payroll and wider employer costs are ever-increasing, even the smallest savings matter. Have you considered what other salary exchange schemes you could implement, and how they could offset increased payroll costs?
It’s also important to note that it’s not just employers who reap the benefits of salary exchange. When structured correctly, you can improve employee take-home pay without increasing their base salary.
A practical next step
Ensuring your salary exchange schemes are still compliant following April’s National Minimum Wage changes doesn’t have to be complex or disruptive.
A wage review can confirm whether any employees will be impacted and ensure your salary exchange remains compliant throughout 2026.
Importantly, it provides reassurance that the right checks have been made at the right time.
Book your salary exchange review for April 2026
Our Employee Benefits team is experienced in conducting wage and salary exchange reviews for organisations of all sizes.
They will help you understand who, if anyone, is impacted, confirm your compliance position, and make sure your arrangements continue to support both your people and your business.
Contact the team today to book in your 2026 salary exchange and wage review.