The UK Government takes paying the National Minimum Wage (NMW) and the National Living Wage (NLW) seriously. HMRC has previously publicly named and shamed employers who fail to pay workers correctly, along with the appropriate fines and legal action.
HMRC have also published a list of ‘outrageous excuses’ cited by employers who have failed to pay the minimum wage. To avoid ending up in these kinds of publications, employers must remain compliant and understand their legal requirements.
The Requirements of Paying the Minimum Wage
From 1st April 2025, the new minimum wage rates are:
- £12.21 per hour for those aged 21 or over (The National Living Wage)
- £10.00 per hour for those aged between 18 and 20
- £7.55 per hour for those aged under 18
- £7.55 per hour for apprentices
These rates apply to employees and workers; whether they are full-time, part-time, agency staff or on zero-hours contracts. If you employ apprentices, you must ensure they receive the correct rate, particularly after they turn 19 and complete their first year of training.
Common Employer Mistakes
Even with the best intentions, employers sometimes underpay staff due to errors. Common mistakes include:
- Continuing to pay the apprentice rate after an apprentice turns 19 and completes their first year
- Miscalculating pay for workers on commission or piecework
- Not paying for training time
- Failing to adjust wages when a worker moves into a higher wage band
- Deducting expenses that lower pay below the minimum wage (such as uniforms, etc)
To avoid these mistakes, employers should always check the latest guidance on GOV.UK and review their payroll calculations regularly.
How to Calculate the Minimum Wage
Employers need to work out the hourly rate correctly. The calculation should be based on Gross Pay (before tax and National Insurance) divided by the total hours worked in a pay period.
For example: If a worker earns £500 per week and works 40 hours, their hourly rate is £500 ÷ 40 = £12.50. This rate meets the NLW for workers aged 21 and over in 2025.
If pay includes bonuses or incentives, employers should factor these into the total calculation. However, tip, overtime pay and benefits (such as meal vouchers) do not count towards minimum wage calculations
Accommodation and Wage Deductions
If an employer provides accommodation, they can apply an Accommodation Offset to reduce the minimum wage calculation. In 2025, this offset is £10.66 per day or £74.62 per week. However, employers must not make deductions for tools, uniforms or training if it results in pay falling below the legal minimum.
Pay Increases and Timing
Workers are entitled to a higher minimum wage when:
- They turn 18 to 21
- The government increases rates (usually in April)
- An apprentice turns 19 and has completed their first year
However, the increase applies from the next pay reference period. If an employer pays an employee monthly and that employee turns 21 on 10th April, they may not see an increase until their next pay period starts, such as 1st May.
What to Do if Underpayment Happens
Employers must correct any mistakes immediately. This includes backdating payments to the affected worker and ensuring future payments comply with legal requirements. If an employee suspects underpayment, they can:
- Use the National Minimum Wage calculator on GOV.UK
- Speak to their employer
- Raise a formal grievance
- Report the issue to HMRC (who can issue fines and take legal action)
Consequences of Non-Compliance
The government has strict penalties for employer who fail to pay the correct wage. Consequences include:
- Fines based on the level of underpayment, per worker underpaid
- An order to repay workers up to 6 years’ worth of underpaid wages
- Public naming and shaming of non-compliant businesses
- Potential legal action, including criminal proceedings
Contact Us
We are not just accountants; we are Chartered Accountants with one of the most reputable and premium accounting bodies. We are registered and regulated by ACCA; so you can rest assured that you are in good hands. Knowing this, don’t hesitate to get in touch with us if you require assistance: Pi Accountancy | Contact Us
The information provided in this article is intended for general guidance and informational purposes only. While we strive to ensure accuracy and keep content up to date, tax laws and regulations may change.