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Employment Contracts & Recruitment
Holiday & Working Time
Employment & HR

Complying with National Minimum Wage

Primed Team
26 February 2024 5 minutes

HMRC has named and shamed over 500 companies in 2024 for National Minimum Wage breaches including Estee Lauder Cosmetics Group, EasyJet and restaurant group Mitchells and Butlers.

Previous offenders in 2023 included household names like WH Smith (with the highest underpayment of over £1million), Marks & Spencer and Argos.

In total, companies failed to pay workers nearly £16 million which has since been repaid plus fines of 200% of their underpayment in financial penalties. Understanding and complying with National Minimum Wage legislation is key for your business to avoid HMRC fines, tribunal claims and a bad reputation.

national minimum wage calulation

National Minimum Wage breaches

How did they breach the National Minimum Wage (NMW) we hear you ask? Surely, it’s straightforward. Well, the number one reason for breach was incorrect deductions made from pay, closely followed by failures to pay for all working time, with the third main reason being incorrect apprenticeship rates being paid.

Other reasons for breaches included:

  • Failure to pay new rate when a worker gets older or in line with the NMW rates increase in April
  • Incorrect application of the accommodation offset
  • Incorrect classification of work type, for example, incorrectly treating a worker as a salaried hours worker
  • Worker status error, for example, where someone is incorrectly treated as self-employed or as an unpaid intern


How should I calculate National Minimum Wage?

It’s essential to understand how the National Minimum Wage is calculated to avoid unintentional violations.

The first thing you need to know is that there’s not one flat rate, instead there are different minimum wage rates for various age brackets, including apprentices.

As an employer, you must be aware of these rates and ensure you are paying your employees according to their age and employment status, including updating salary/pay when these as changes occur.

To calculate the National Minimum Wage, it is important to understand the elements that can be included in the calculation. Basic pay, bonuses, commissions, and even some allowances count towards the NMW, whereas tips, service charges, and premium payments do not.

By accurately accounting for these factors, you’ll be confident that you’re complying with the NMW legislation.


The National Minimum Wage calculation

Compliance is determined by pay period – i.e. has the worker been paid the National Minimum Wage for the hours worked over the pay period in question.

To determine if the National Minimum Wage has been paid, divide their total pay for the pay period by the number of hours they worked in the same period to find the hourly rate. If that amount is equal to or higher than the National Minimum Wage rate which applies to them, then you have paid the NMW.

For example, let’s say the NMW rate for a worker is £10.18 per hour, they are paid weekly, and they worked 40 hours in a week. If their total pay for that week is at least £10.18 multiplied by 40 hours (which equals £407.20), then you have met the NMW requirements.

It sounds straight-forward enough, but where most employers fall foul, is not in the conducting of the calculation, but applying the principles correctly, for example, determining in the first place what is included in pay and working time.

Breaching National Minimum Wage legislation

There are several things that can catch employers out which can lead to inadvertent breaches of the NMW requirements. A technical breach is a breach nonetheless and will attract enforcement action from HMRC.


Deductions or mandated payments

One common pitfall is when employers charge employees for uniforms or deduct uniform costs from their wages. It is crucial to note that such deductions cannot bring an employee’s pay below the NMW.

If the cost of uniforms or any other required workwear pushes the employee’s earnings below the NMW, you must bear the cost yourself.

As well as uniform, other deductions, or payments (i.e. requiring the worker to make a payment) that reduce pay for the purposes of calculating National Minimum Wage include:

  • Food/meals
  • Parking permits and travel costs
  • Work equipment including PPE
  • Stock or till shortages
  • Training costs
  • Christmas saving schemes
  • Childcare costs
  • Salary sacrifice schemes
  • Clothing the worker is required to purchase to adhere to a dress code


Unpaid working time

As evidenced by the recent name and shame, several employers also inadvertently fail to include the time spent on certain activities, such as training or mandatory meetings, when calculating the National Minimum Wage. It’s vital to consider these factors and ensure that all hours worked, including non-standard hours or additional tasks related to employment, are accounted for correctly.

Unpaid working time which reduces pay for the purposes of calculating NMW includes:

  • Additional work before and after a shift
  • Rounding clock-in time to the nearest hour
  • Unpaid travel time
  • Delayed or under payments due to cashflow
  • Paid for regular hours but worker has worked more time
  • Salaried worker works in excess of basic hours
  • Time taken for attending mandatory training
  • Sleep in and trial shifts
  • Overtime


Calculating National Minimum Wage for Apprentices

HMRC revealed that 21% of employers failed to pay the correct apprenticeship rate, with the key problems arising where the apprentice:

  • is aged over 19, has completed their first year of apprenticeship and is still paid the apprentice rate
  • is incorrectly classified as an apprentice
  • has finished their apprenticeship but has not had their pay increased to reflect the new NMW rate they are entitled to

Compliance with National Minimum Wage can become particularly complex when you have a number of factors at play – young age, provision of uniform, accommodation, training.

Employers must be very careful anytime they are making a deduction, or requiring a worker to pay an amount for anything, particularly where that worker is paid at or close to the National Minimum Wage.

It’s all too easy to inadvertently breach the legislation, and no one wants to find themselves on HMRC’s next naughty list.

If you’d like to pick our brains about calculating national minimum wage for your employees or need help understanding the Working Time Regulations, book a free call today with one of our team.

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