A number of companies have announced plans to cut back on staff benefits to cope with the cost of the new national living wage.

But is this legal? Could there be alternative ways to manage the hike in staff salaries?

When the new regulations were announced in 2015, the Office for Budget Responsibility predicted that the wage rise to £7.20 per hour for those aged 25 and over, which is due to rise to £9 by 2020, would lead to the loss of 60,000 jobs and four million fewer working hours per week.

Waitrose and Caffè Nero are among the high-street names that have since faced criticism after withdrawing certain benefits (a free lunch in the case of Caffè Nero), or reducing Sunday pay rates. Expecting employers to absorb a significant increase in wage costs without having to make sacrifices is simply unrealistic.

Reducing or entirely cutting employee benefits may not be the best strategy for morale or reputation, but is it actually illegal? Ultimately it depends whether the employers are removing something that is contractual or not; if it’s a discretionary benefit, it can be legally removed.

One area where employers do need to be particularly cautious is where certain benefits have become “custom and practice”, and therefore binding.

If employers feel they need to vary perks of employment that are contractual or create new terms, this must be done with employees’ agreement following a proper consultation process.

If not, employers are risking claims being brought against them for unlawful deductions from wages, breach of contract and constructive or even unfair dismissal.

Aside from the legal aspects of taking away benefits, employers also need to be mindful of the emotional attachment employees can form with workplace perks such as free meals or travel, as well as the positive impact they can have on reputation and retention rates.


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