Bike-to-Work Schemes and NMW: The Compliance Trap Every Employer Must Avoid

 

You've implemented a brilliant bike-to-work scheme. Your staff are cycling to work, saving money, and getting fitter. Then HMRC comes calling with an unexpected bill for National Minimum Wage (NMW) underpayments. Think it won't happen to you? It's happening to employers right across the UK who thought they were doing everything by the book.

The bottom line: Even well-intentioned bike schemes can land you in serious legal hot water if salary sacrifice takes any member of staff below the minimum wage threshold.

What's the Problem?

Bike-to-work schemes operate through salary sacrifice, where staff reduce their gross salary in exchange for their employer purchasing a bike. However, UK law strictly prohibits any salary sacrifice arrangement that reduces a worker's cash earnings below the National Minimum Wage rates (£12.21 per hour from April 2025 for workers aged 21+).

The trap is particularly sneaky because even staff earning well above minimum wage can breach NMW rules. Consider this scenario: a member of staff earning £50,000 per annum decides to sacrifice £3,000 for pension contributions plus £200 monthly for a bike scheme. In March, their earnings after sacrifices drop to £1,166. Based on 23 working days and 7.5 working hours daily, this creates an NMW underpayment that the employer must put right immediately.

Why This Matters More Than Ever

Recent NMW rate increases affect more workers, with the main rate now including 21 and 22-year-olds. Even one-off salary sacrifices can lead to a breach of NMW, even if staff, on the face of it, are paid far more than NMW. Whilst penalties may not always be charged for certain NMW breaches related to salary sacrifice, employers are still required to make good any underpayments.

The Hidden Risks in Your Bike Scheme

Risk 1: Variable Working Hours

Staff with fluctuating schedules can unexpectedly drop below NMW when working fewer hours whilst bike scheme deductions remain constant.

Risk 2: Multiple Salary Sacrifices

Combinations like bike schemes, pension contributions, and childcare vouchers can cumulatively push staff below minimum wage thresholds.

Risk 3: Annual Rate Increases

When minimum wage rates increase each April, existing participants may suddenly become non-compliant without any change to their circumstances.

Your Compliance Checklist

Before Offering the Scheme

Conduct Eligibility Assessments

• Calculate each member of staff's hourly rate after all proposed deductions
• Build in a safety margin of at least 50p-£1 per hour above NMW
• Consider offering longer payment periods (18, 24, or 36 months) to reduce monthly deduction amounts

Review Contract Requirements Every salary sacrifice arrangement requires changing the staff member's contract, and employers must put procedures in place to cap salary sacrifice deductions and ensure NMW rates are maintained.

During the Scheme

Monthly Monitoring

• Review all salary sacrifice participants monthly
• Flag staff approaching NMW thresholds
• Suspend deductions temporarily when staff hours reduce

Annual Reviews Each April when NMW rates increase:

• Reassess all active participants
• Adjust payment terms where necessary
• Communicate changes to affected staff

Smart Solutions for Lower-Paid Staff

Extended Payment Periods

Instead of 12-month schemes, offer 18-36 month payment periods to reduce monthly deductions and keep staff above NMW thresholds.

Alternative Schemes

Some employers support their staff by offering pool bikes or bike rental memberships that avoid salary sacrifice altogether.

Employer Top-ups

Progressive employers increase base salaries for lower-paid staff to enable bike scheme participation whilst maintaining NMW compliance.

Technology Solutions

Ensure your payroll system can:

• Flag NMW alerts before processing deductions
• Calculate hourly rates for salaried employees
• Handle variable deduction amounts
• Provide monthly compliance reports

What to Do If You've Made a Mistake

Immediate Actions:

1. Stop further deductions causing NMW breaches
2. Calculate total underpayments for affected staff
3. Repay underpayments immediately
4. Strengthen monitoring processes

The Cost of Getting It Wrong

Beyond immediate underpayment costs, NMW breaches can result in HMRC investigations, penalties, reputational damage, and requirements for enhanced monitoring systems. More importantly, you could be denying your lowest-paid staff access to cycling benefits.

Key Takeaways

1. Never assume safety: Even high earners can breach NMW through salary sacrifice
2. Build in buffers: Always maintain safety margins above NMW thresholds
3. Monitor constantly: Monthly reviews are essential, not optional
4. Plan for changes: Anticipate annual NMW increases and work variations
5. Seek alternatives: When salary sacrifice isn't viable, explore other cycling support options

Your Next Steps

1. Audit your current scheme: Review all active participants against current NMW rates
2. Strengthen monitoring: Implement monthly compliance checks
3. Update contracts: Ensure salary sacrifice agreements include appropriate safeguards
4. Train your team: Educate payroll and HR staff on NMW calculation requirements
5. Plan for April: Prepare for annual NMW rate increases

Remember: A compliant bike-to-work scheme isn't just about avoiding legal problems – it's about ensuring your staff benefits genuinely benefit all your staff, regardless of their pay level.