The National Minimum Wage (NMW) and National Living Wage (NLW) represent cornerstones of UK employment law, designed to ensure fair compensation for workers across all sectors.
For employers, understanding these regulations is not merely good practice – it’s a legal obligation with significant consequences for non-compliance.
This blog explores the UK’s minimum wage framework, highlighting key compliance requirements, common pitfalls, and best practices to help businesses navigate this essential aspect of employment law.
NMW structure and rates
Unlike many countries with a single minimum wage rate, the UK operates a tiered system that varies by age and apprenticeship status.
The next increase in these rates comes into effect on 1 April 2025 and see the rates increase to;
- National Living Wage (for workers aged 21 and over)
£12.21 per hour (a 6.7% increase from £11.44) - National Minimum Wage:
- Ages 18-20: £9.18 per hour (a 6.7% increase from £8.60)
- Under 18: £6.84 per hour (a 6.9% increase from £6.40)
- Apprentice rate: £6.84 per hour (a 6.9% increase from £6.40)
This age-graduated approach aims to balance fair compensation with encouraging youth employment opportunities. The rates are typically reviewed annually, with changes announced in the Autumn Budget and implemented the following April.
The 2025 increases represent significant rises above inflation, continuing the government’s commitment to raising wage floors while monitoring economic impacts. Employers should factor these upcoming increases into their financial planning, particularly those in sectors with high proportions of minimum-wage workers.
Historical context and evolution
Following decades of debate about wage protection measures, the UK introduced the National Minimum Wage in 1999 under the Blair government. Initially set at £3.60 per hour for adults, it represented a significant shift in UK employment policy.
The system evolved substantially in 2016 with the introduction of the National Living Wage for workers aged 25 and over (later reduced to 21 and over), creating a higher tier above the existing minimum wage structure. This move addressed in-work poverty while recognising different labour market realities for various age groups.
Unlike the voluntary Real Living Wage calculated by the Living Wage Foundation based on actual living costs, the government’s National Living Wage is a statutory minimum with a different calculation methodology.
Legal framework and enforcement
- The minimum wage in the UK is governed primarily by:
- The National Minimum Wage Act 1998
- The National Minimum Wage Regulations 2015
- Various amendment regulations issued periodically
Enforcement responsibility lies with HM Revenue & Customs (HMRC), which has significant investigative powers, including:
- Conducting workplace inspections
- Requiring the production of payment records
- Interviewing workers and employers
- Responding to worker complaints via the ACAS helpline
For the 2023-2024 period, the government allocated additional funding to HMRC for minimum wage enforcement, reflecting a commitment to ensuring compliance across all sectors.
Compliance requirements for employers
To meet your legal obligations regarding minimum wage, you must:
#1 Pay the correct rate
Employers must pay at least the applicable minimum wage rate for all hours worked. This includes:
- Time spent working
- Time spent travelling for work (but not commuting)
- Training time required for the job
- Time spent on call at the workplace
#2 Maintain proper records
You must keep payment records that demonstrate compliance for at least three years. These records should include;
- Total hours worked
- Payments made to workers
- Details of deductions or payments for accommodation
- Worker details, including age and role
#3 Provide payslips
Detailed payslips must be provided to all workers showing;
- Gross pay
- Net pay
- Any deductions made (as these could bring the level below the minimum wage threshold)
- Number of hours paid (if pay varies by hours worked)
#4 Handle deductions carefully
Not all deductions are permitted when calculating minimum wage compliance. Deductions that cannot reduce pay below minimum wage include;
- Voluntary shop purchases
- Uniforms and tools
- Shortages from tills
- Unpaid breaks
#5 Apply the accommodation offset correctly
If you provide accommodation, you can count some of its value toward minimum wage payments, but only up to the accommodation offset rate (£10.66 per day or £74.62 per week for 2025-2026).
Common compliance pitfalls
HMRC investigations frequently identify particular issues that lead to non-compliance.
Working time miscalculations
- Unpaid pre-shift activities – requiring workers to arrive early for briefings or preparation without pay
- Security checks – time spent waiting for and undergoing security checks at shift end
- System shutdowns -unpaid time spent closing systems after scheduled hours
Incorrect pay calculations
- Averaging pay – averaging pay across pay periods incorrectly
- Piece rate complexities – failing to ensure piece rates deliver minimum wage for all hours worked
- Tips and service charges -counting these toward minimum wage payments (not permitted)
Uniform and equipment issues
- Mandatory uniforms – requiring workers to purchase specific clothing without reimbursement
- Uniform maintenance – unpaid time or expenses for cleaning required uniforms
Deductions and salary sacrifice
- Excessive deductions – taking deductions that reduce pay below minimum wage levels
- Salary sacrifice schemes – mplementing these incorrectly concerning minimum wage thresholds
Naming and shaming non-compliance
The consequences of failing to pay the correct NMW are substantial, with the UK government taking a rigorous approach through its “name and shame” policy.
If you fail to comply with National Minimum Wage regulations, you could face heavy financial implications and damage to your business reputation.
- Heavy fines of up to 200% of the underpayment (capped at £20,000 per worker)
- A requirement to repay workers the full amount owed at current minimum wage rates
- The government publishing your company name on their list of employers who have failed to comply as part of its official “name and shame” policy
- Reputational damage from the inevitable negative publicity
- In severe cases, it could lead to the disqualification of company directors
NMW ‘name and shame’ policy
The UK government’s ‘name and shame” scheme, officially known as the National Minimum Wage Naming Scheme, was introduced in 2013 and revamped in 2020 to increase transparency and compliance.
Under this policy:
- Employers who underpay workers by more than £100 in total may be publicly named
- The Department for Business and Trade publishes regular bulletins naming non-compliant employers
- These bulletins detail the employer’s name, location, sector, amount of arrears, number of workers affected, and average arrears per worker
- No exemptions are typically granted based on company size, reputation, or unintentional errors
- The information is widely distributed to national and local media, often resulting in significant negative coverage
Recent naming rounds have included both small local businesses and major national brands, demonstrating the government’s commitment to enforcement regardless of an employer’s size or prominence.
HMRC’s enforcement has intensified in recent years, with record numbers of employers being investigated and penalized. Between 2020 and 2023, over £20 million in arrears was identified for more than 200,000 workers, with hundreds of employers named in public bulletins.
Best practices for ensuring NMW compliance
To mitigate risks and ensure ongoing compliance you need to have processes in place.
Regular audits
Conduct thorough periodic reviews of your payroll systems and working practices:
- Compare actual hours worked against payroll records
- Review all deductions to ensure compliance
- Verify correct classification of workers by age
Comprehensive documentation
Maintain detailed records that go beyond minimum requirements:
- Keep accurate timesheets for all workers
- Document all payment calculations
- Record all wage-related policies and communications
Clear communication
Ensure transparent communication with your workforce:
- Provide clear payslips with detailed breakdowns
- Explain any deductions thoroughly
- Make minimum wage policies easily accessible
Stay informed of changes
The minimum wage landscape evolves regularly:
- Subscribe to government updates about rate changes
- Review new guidance from ACAS and HMRC
- Consider joining employer associations that provide compliance updates
- Plan ahead for the announced future increases to avoid compliance issues
Training for managers
Ensure those responsible for scheduling, payroll, and supervision understand:
- What counts as working time
- How to calculate minimum wage compliance
- The implications of scheduling decisions on wage compliance
Special considerations for different sectors
Some industries and role types face particular compliance challenges and require additional vigilance.
Hospitality and retail
Tipping policies within the hospitality sector require careful management to ensure compliance with minimum wage regulations. Tips received by workers cannot be counted toward meeting minimum wage obligations, and employers must maintain proper records of tips separate from base wages.
Uniform requirements must be factored into compliance calculations for hospitality and retail, where uniforms are required. When employees must purchase or maintain specific uniforms, these costs should be considered to ensure workers’ effective wages do not fall below the minimum wage threshold.
Variable hours present a particular challenge in hospitality and retail. To ensure proper compensation, employers must implement robust systems to accurately track all working hours, including preparation time, cleanup periods, and mandatory staff meetings.
Care Sector
The care sector is another sector where specific anomalies affect NMW. Sleep-in shifts have specific regulations. Workers who are expected to sleep during most of a sleep-in shift and are provided with suitable sleeping facilities will only receive the National Minimum Wage for periods when they are awake to perform tasks. However, workers expected to work for most of a night shift must receive the National Minimum Wage for the entire shift, even if they are permitted to sleep between tasks.
For in-home care providers, travel time between client visits must be properly accounted for in workers’ pay. Time spent travelling directly between appointments with clients counts as working time and must be compensated at minimum wage rates.
Training requirements that are mandatory for care positions must be included in paid time calculations. Employers cannot require workers to complete essential training outside of compensated hours.
Apprenticeships
Correct classification of apprentices is essential for compliance. Employers must ensure apprentices receive the appropriate minimum wage rate based on their age and progress through the apprenticeship program.
Apprentices’ training time must be properly compensated. All off-the-job training hours should be included in working hours calculations and paid accordingly.
Progression of apprentices through age brackets or completion of their first year requires timely wage adjustments. Employers must update pay rates when apprentices reach age thresholds that qualify them for higher minimum wage rates or complete their first year of apprenticeship.
Future Developments
The UK minimum wage system is continually evolving, and key developments to watch include:
- Age threshold changes – the government has indicated potential further adjustments to age bands
- Enforcement mechanisms – enhanced powers for HMRC and increased penalties are regularly considered
- Post-Brexit policy divergence – potential changes to working time calculations and other employment regulations
- Digital reporting requirements – the possible introduction of more rigorous digital record-keeping requirements
Compliance with the National Minimum Wage isn’t just a legal obligation -it’s an ethical commitment to your workforce and a cornerstone of sustainable business practice. By understanding your obligations, implementing robust systems, and staying informed of changes, you can avoid costly penalties while contributing to a fairer labour market.
