As most employers will be aware, another significant rise in the National Minimum Wage (NMW), took effect from 1 April 2025, continuing the upward trend of recent years. Apprentices will see an 18% pay rise, while the National Living Wage for those over 21 will grow at more than double the inflation rate (3.0%).

This change, coupled with new costs introduced in the October 2024 Autumn Budget, will add further financial pressure on employers. As the rates increase employers may find that more of their workforce will need a pay rise to meet the new NMW thresholds and with an increasing proportion of employees earning on or close to NMW, the risk of non-compliance and potential penalties for businesses increases.

Where do employers commonly go wrong?

Last year, around 371,000 workers were underpaid, often due to miscalculations by employers rather than intentional non-compliance. Since such errors can lead to significant fines (up to 200% of any underpayment), it’s crucial for employers to proactively identify and address common compliance risks before enforcement agencies or their employees do.

So, what are the common pitfalls that employers stumble into?

Deductions for uniforms or equipment

If employers require employees to buy uniforms or work-related equipment without reimbursing them, their effective pay could fall below the NMW threshold. HMRC guidance distinguishes between required and optional uniforms. If an employer requires staff to wear branded clothing or specific attire for work, any cost incurred by the worker (such as laundry costs) effectively reduces their NMW pay. Even if the uniform itself is optional, deductions from wages to cover its cost can still bring pay below the legal minimum. If you have uniforms in place, you should consider whether the cost of purchasing or maintaining the uniforms could impact NMW compliance.

Salary Sacrifice Schemes

Salary sacrifice schemes, such as pension contributions or cycle-to-work programs, must not reduce an employee’s pay below the NMW threshold. Although salary sacrifice schemes are designed to benefit the employee, if a scheme results in the employee’s hourly rate of pay falling below the NMW then this will create a breach. With NMW rates going up, employers should audit existing schemes to make sure that the increases don’t take any existing employees under the NMW, and that salary sacrifice schemes are only offered to new joiners who earn a sufficiently high rate of pay.

Unpaid working time

Employers frequently miscalculate what time counts as “working time” when calculating NMW. Whilst on an individual level, these underpayments may be small, if they are multiplied across a whole workforce they can create a significant compliance risk. Some of the most common areas of concern include:

• Mandatory training: employees must be paid the NMW for all mandatory training, even if it occurs before their official start date.
• Pre- and post-shift duties: tasks such as setting up workstations, closing down operations, putting on their PPE or undergoing security checks must be factored into working time.
• On-call time: even if they are not actively working ‘on-call time’ can count as working time if employees are required to be in certain locations or follow particular instructions.
• Time off in lieu (TOIL): if additional hours worked in one pay period are offset in a later period through TOIL, an employee’s pay for the first period could fall below the NMW threshold, leading to unintentional breaches.

Travel time misconceptions

Employers operating across multiple sites must be aware of NMW rules regarding travel time. While travel between an employee’s home and usual place of work is not considered working time, if a worker is required to report to a site before being transported elsewhere, the travel time could be included for NMW purposes. In addition, if employees are designated as home workers, travel time to other sites/offices may also be included. Employers must assess these scenarios carefully to avoid NMW miscalculations.

What employers should do now?

Failing to comply with NMW regulations carries significant consequences: You could face penalties of 200% of the underpaid amount (up to £30,000 per worker), costly HMRC investigations, employment tribunal claims, public “naming and shaming” by HMRC, and reputational damage.

To avoid these risks, we would recommend:

• Audit pay structures: ensure that pay practices align with the new NMW rates and regulations. Conduct regular internal reviews to catch potential issues.
• Review deductions policies: check that uniform, equipment, and salary sacrifice schemes do not inadvertently reduce pay below the legal minimum.
• Train payroll and HR teams: many NMW breaches stem from a lack of awareness. Training staff on compliance requirements can prevent costly mistakes.
• Monitor working time accurately: implement systems to track working hours comprehensively, including training time, on-call hours, and travel time where applicable.

If you need support in reviewing your NMW policies, we’re here to help, please reach out to our Employment & Immigration team for any advice.