Are you failing to pay the National Minimum Wage and National Living Wage?


The Government and HMRC have put a great deal of effort, money and focus into enforcing the NMW and NLW legislation. Employers are being ‘named and shamed’ for non-compliance, having to repay all underpayments due and facing penalties of up to 200% of the amount owed. The maximum fine for non-payment is £20,000 per employee. However, employers who fail to pay can also be banned from being a company director for up to 15 years.

It is also important to note that many employers often unknowingly breach the NMW &NLW legislation. Employers therefore need to ensure they are keeping up to date with the regulations and also with the changes to the rates of minimum wage.

There are certain deductions made by employers from employees’ pay, or indeed payments made by employees to third parties, which can reduce their pay for NMW and NLW purposes.

Here are some examples where employers could potentially fall foul in paying the NMW and NLW:

  • Employers who utilise salary sacrifice need to be aware that the ‘sacrifice’ has the potential to reduce an employee’s income below the NMW and NLW rates. In 2017 a major retailer self-identified a breach of the minimum wage regulations due to deductions made by way of salary sacrifice in respect of benefits which their employees had ‘voluntarily’ opted into e.g. pensions, health care, childcare vouchers and cycle to work schemes etc.
  • A large number of employers are caught out due to the use of ‘pay averaging’ which spreads employees’ pay evenly over the course of a year regardless of variations in hours worked in particular months. Although pay averaging helps the employer and employee with certainty, in that the employer can be sure of their monthly payroll costs and the employee knows that their income will be consistent, despite the number of hours they have worked in a particular month the NMW and NLW regulations differentiate between types of work carried out:

Salaried hours worked - paying for a fixed number of hours work in a year and paid on an annual salary in weekly/monthly instalments; and

Time worked - paying for time actually worked (e.g. at an hourly rate). Time worked may involve clocking in and out at the start and end of the day to inform the employer of actual hours recorded.

  • A number of large employers require their staff to attending briefings before their shifts start and to also undergo security checks after their shifts have ended which are outside of their paid working hours. This is a breach of the NMW/NLW regulations as the employees should be paid for this time.
  • It is common for employers to deduct deposits from employees’ wages to cover damages to items such as company uniforms, accommodation, company cars and equipment. The deduction of such deposits can unknowingly cause the employer to fall foul of the NMW and NLW regulation.

Here are some examples of the types of remuneration that do not count as pay for NMW and NLW purposes:

  • Tips to make up employee pay
  • Benefits in kind – except for accommodation (in certain circumstances)

Here are some examples of the kinds of deductions which will reduce pay for minimum wage calculation purposes:

  • Not paying employees for time spent travelling between appointments
  • Uniforms
  • Equipment or tools
  • Deductions made for meals
  • Transport provided by the employer

Please click here for a more comprehensive guide and further examples of potential breaches to the NMW and NLW.

How is the minimum wage regulation enforced?


Employees can complain to HMRC which will trigger an investigation into the employers business. There is also potential of damage to reputational brand if HMRC names and shames the employer.

If you are in any doubt whatsoever regarding compliance in ensuring you are paying the correct rates please don’t hesitate to contact our payroll team:

Graeme Sheridan
Payroll Partner
direct dial: 01942 292506
mobile: 07712 679064

Joanne Green
Payroll Manager
direct dial: 01942 292528

Emma Lambert
Payroll Manager
direct dial: 01942 292557