In summary, workers are entitled to be paid at least the National Minimum Wage (NMW) rate in each pay reference period. The pay reference period is one month, or any shorter period a worker is paid in reference to (for example, one week for weekly paid workers). The rules around NMW requirements can be complex, and in our experience, employers may occasionally fail to comply due to technicalities or oversight.
On 1 April 2025, the National Living Wage (for those aged 21 and over) increased by 6.7% to £12.21 per hour, while the National Minimum Wage for 18 to 20-year-olds rose by 16.3% to £10.00 per hour (in order to gradually close the gap between these two rates in line with government policy). This year's NMW increase again requires careful attention from employers.
Similar to last year's National Living Wage increase, which saw a nearly 10% rise and which extended the National Living Wage (NLW) rate to 21 and 22-year-olds for the first time, the April 2025 increase brings more employees' wage levels closer to the minimum threshold; thus increasing the risk of unintentional non-compliance.
Employers should also note that the increase in the NMW rates also mean additional National Insurance Contributions from the employer since 6 April 2025, both at the higher 15% rate, up from 13.8%, and which now kick in at £5,000 rather than £9,100 per employee. A wage/salary increase also means higher employer auto-enrolment pension contributions, which are payable by employers.
Small business employers do, however, benefit from a higher level of Employment Allowance (conceived originally by FSB and since expanded). Following FSB campaigning the Employment Allowance now covers the first £10,500 of each small firm's National Insurance bill per annum to help with employer National Insurance Contributions.
The National Minimum Wage Regulations are complicated but, in short, workers are entitled to be paid no less than the NMW in any pay reference period. The pay reference period is one month, or any shorter period a worker is paid in reference to.
According to HMRC that enforces payment of the NMW, the five most common mistakes employers make are:
- Underpaying workers: this can happen when employers fail to implement the annual rate increases which apply on 1 April in each year, miss birthdays and therefore don’t move workers from one age band to another or make errors in applying the apprentice rates. Overlooking for example the fact that an apprentice has completed their first year of their apprenticeship
- Making deductions that take a worker’s pay below NMW/NLW rates: deductions for items connected with the job such as uniforms, training costs, salary sacrifice schemes such as cycle to work and pension schemes, deductions for services provided by the employer such as meals or transport, Christmas saving schemes; or excessive deductions for employer-provided accommodation. Employers are encouraged to take advice before making deductions from wages where employees’ wages are close to the National Minimum Wage level.
- Including certain payments such as shift allowances under certain circumstances or customer tips or bonuses when calculating a worker’s pay for NMW/NLW purposes.
- Worker status errors: mistakenly treating workers as volunteers, unpaid interns or self-employed, rather than workers who are entitled to receive the NMW/NLW.
- Unpaid working time: additional hours worked but not paid. These are often regular but very short periods of time, for example time spent helping to shut up shop or clear security after a worker’s shift has ended, or can be longer periods spent training or ‘down time’ waiting. Other errors can occur around travelling time if it’s in connection with the worker’s job, such as between assignments, and sleeping time.
It’s important to check your payroll set up to help avoid these errors and to take advice, if in doubt, as the penalty for underpaying in the event an HMRC compliance officer serves a Notice of Underpayment is high. It is calculated as 200% of the total underpayment for all of the workers with a maximum penalty of £20,000 per worker. The penalty is reduced by 50% if all of the unpaid wages and 50% of the penalty are paid in full within 14 days.
Guidance for employers can be found in our National Minimum Wage fact sheet on the FSB Legal and Business Hub, as well as on the gov.uk website.