What is the National Minimum Wage?

The National Minimum Wage (NMW) and National Living Wage (NLW) are the legal minimum hourly pay rates that UK employers must pay their workers. The NLW applies to workers aged 21 and over, while the NMW covers younger workers and apprentices. These rates are reviewed annually and typically increase each April.

Current Rates (April 2024)

The apprentice rate applies to apprentices aged under 19, or aged 19 and over in the first year of their apprenticeship. After the first year, apprentices aged 19 or over move to the rate for their age group.

Who Is Entitled to the Minimum Wage

The NMW/NLW applies to most workers in the UK, including:

• Full-time and part-time employees
• Agency workers
• Casual workers and those on zero-hours contracts
• Piece workers (paid per item produced)
• Home workers
• Foreign workers legally entitled to work in the UK
• Agricultural workers (who also have separate Agricultural Wages Orders in some regions)

Who Is Not Covered

Certain groups are exempt from NMW/NLW:

• Self-employed individuals
• Company directors (unless they have a contract of employment)
• Volunteers for charities, voluntary organisations or statutory bodies
• Members of the armed forces
• Family members living in the employer’s home who share in tasks and activities
• Share fishermen
• Prisoners working under prison rules
• Students on work placements of one year or less that form part of a UK-based higher or further education course

How the Minimum Wage Is Calculated

The NMW is based on the hourly rate, but many employees are paid monthly, weekly or on a piece-rate basis. The calculation involves dividing the employee’s total pay by the total hours worked in the pay reference period (normally one month or one week).

Pay Reference Period

The pay reference period is the interval between pay dates, up to a maximum of one month. If the employee is paid monthly, the reference period is one month. If paid weekly, it is one week.

What Counts as NMW Pay

What Counts as Hours Worked

There are four types of work for NMW purposes:

The Accommodation Offset

The accommodation offset is the only benefit in kind that counts towards NMW pay. If an employer provides accommodation, they can count up to the accommodation offset rate (£9.99 per day or £69.93 per week for 2024/25) towards the worker’s pay.

If the employer charges the worker for accommodation, only amounts above the offset rate are deducted from NMW pay. Charging more than the offset rate effectively reduces the worker’s hourly rate for NMW purposes.

Employer Obligations

Paying the Correct Rate

Employers must:

• Pay at least the applicable NMW/NLW rate for every hour worked
• Apply the correct rate based on the worker’s age at the start of the pay reference period
• Increase the rate when the worker reaches a new age threshold (e.g. turning 21)
• Apply the new rates each April when they change

Record Keeping

Employers must keep sufficient records to show they are paying at least the NMW. Records should include:

• Hours worked by each worker
• Pay received by each worker
• The pay reference period used
• Any deductions or payments for accommodation

Records must be kept for at least 3 years from the end of the pay reference period they cover. Workers have the right to request access to their NMW records.

Display Requirements

While there is no longer a legal requirement to display NMW posters, employers should ensure workers know their entitlements. Information is available on the GOV.UK website.

Deductions and Their Impact on NMW

Certain deductions can take a worker’s effective pay below the NMW, which is illegal. These include:

Deductions That Reduce NMW Pay

• Uniform or workwear charges — if the employer requires specific clothing and deducts the cost
• Tool or equipment charges — deductions for items required for the job
• Cash shortages or stock deficiencies — deductions from retail workers’ pay
• Excess accommodation charges — amounts above the accommodation offset

Deductions That Do Not Reduce NMW Pay

• Income tax deducted under PAYE
• National Insurance contributions
• Pension contributions under auto-enrolment
• Student loan repayments
• Court-ordered deductions (attachment of earnings)
• Voluntary deductions for the worker’s own benefit (e.g. savings schemes, union dues)

Enforcement and Penalties

HMRC is responsible for enforcing the NMW on behalf of the Department for Business and Trade. Enforcement actions include:

HMRC Investigations

HMRC can investigate employers who are suspected of NMW non-compliance. Investigations may be triggered by:

• Worker complaints — any worker can contact ACAS or HMRC
• Risk-based targeting — HMRC identifies high-risk sectors
• Intelligence from other government departments

Penalties

In addition to financial penalties, employers found to have underpaid may be publicly named by the government under the naming scheme, which lists businesses that have breached NMW law.

Arrears

HMRC can issue a notice of underpayment requiring the employer to pay all arrears owed to affected workers. Arrears are calculated at the current NMW rate, not the rate that was in force when the underpayment occurred. This means the longer the underpayment persists, the more expensive it becomes.

NMW and Payslips

The NMW does not need to be shown as a separate item on the employee’s payslip , but the payslip must show sufficient information for the worker to verify their pay meets the minimum. This includes:

• Gross pay for the period
• Hours worked (for hourly-paid workers)
• Any deductions made
• Net pay

NMW for Piece Workers

Workers paid on a piece rate (per item or task) must still receive at least the NMW for every hour worked. Employers can use a fair piece rate system:

1. Determine the average number of pieces a worker can produce per hour
2. Multiply by 1.2 (to give a 20% buffer)
3. Set the piece rate so that a worker producing at this rate earns at least the NMW per hour

If the worker’s piece rate earnings divided by hours worked falls below the NMW, the employer must make up the difference.

NMW and Young Workers

Employers must be particularly careful with age-based rate changes:

The new rate applies from the first day of the pay reference period in which the birthday falls.

NMW and Accounting

From an accounting perspective, NMW compliance affects:

• Salary expenses — must reflect at least the minimum rate for all hours
• Payroll processing — systems must correctly apply rates by age
• Accruals — holiday pay must be calculated on NMW-compliant earnings
• Budgeting — annual rate increases must be factored into labour cost projections
• Audit risk — NMW compliance is a common focus in payroll audits

The Real Living Wage

The Real Living Wage is a separate, voluntary rate set by the Living Wage Foundation based on the cost of living. It is higher than the government’s NLW:

Over 14,000 UK employers are accredited Living Wage employers. While voluntary, paying the Real Living Wage is seen as a mark of responsible employment practice and can help with recruitment and retention.

Reporting and RTI

NMW payments are reported to HMRC through the normal RTI process . There is no separate NMW return. However, the data in RTI submissions helps HMRC identify potential non-compliance — for example, if reported earnings divided by expected hours suggest a rate below the NMW.

At year end, NMW-related earnings are included in the employee’s P60 like any other pay. If the employee leaves, the figures appear on their P45 .