Cutting through compliance: National Minimum Wage (NMW)

The situation

HMRC police the National Minimum Wage (NMW). In the last ten years, the budget allocated to NMW compliance has doubled to over £10m, and the fines have doubled to 200% of the arrears calculated up to a maximum of £20,000 per worker who is underpaid.

The challenges

Many high-profile employers are still named and shamed, and HMRC now also have the power to initiate criminal prosecutions. Anyone found guilty will be considered for disqualification from being a company director for up to 15 years. In addition, more whistle-blowers are now coming forward and making formal complaints to HMRC using the new form.

What you need to know

Rates and dates

If the national minimum wage changes, the effective date is the pay period that begins on, or after, 1st April each year. Often official guidance is unclear in saying that the ‘rate changes on 1st April’. It doesn’t, unless that happens to be the beginning of a pay period. So, it may be for monthly paid staff but not for anyone with a different pay frequency. This means if you’re weekly paid you’re not paid half a week at the old rate and any days from 1st April at the new rate. The same applies to birthdays that trigger a new rate. The enhanced rate is effective from the beginning of the pay period after the birthday. NMW rates apply throughout the UK.

The current rates that came into effect in 2017 are:

Age 25 or over £7.50
Age 21-24 £7.05
Age 18-20 £5.60
Age 16-17 £4.05
Apprentices aged under 19 or aged 19 and over but in the first year of their apprenticeship £3.50

National living wage?

The 25 and over rate is often, confusingly, referred to as the national living wage rate. As far as the legislation is concerned it’s just the highest rate of the national minimum wage. The voluntary living wage is, as its name suggests, a non-statutory rate suggested by the Living Wage Foundation who calculate what hourly rate is needed to be able to live inside and outside London. The voluntary living wage goes up each November.

The Living Wage Foundation is an independent movement of businesses, organisations and people who have signed up to pay a more generous rate that is currently £8.45 outside London and £9.05 within London.


Some employers use bizarre excuses for not paying NMW, for example ‘he wasn’t worth that rate’ ‘people have to prove themselves first’. The fact is that from day one the statutory rate is payable based on the person’s age apart from to the following individuals:

  • Volunteers (as soon as they get more than out of pocket expenses they are workers and must receive the NMW)
  • Office holders such as company directors
  • The truly self-employed ie those in business on their own account as sole traders
  • Family members or those who aren’t relations but live as a member of the family and are not charged board or lodging

Simply calling yourself ‘self-employed’ doesn’t mean you aren’t a worker and if you’re a worker then you must receive the NMW.

Time owed

Those who travel between assignments such as care workers must be paid the NMW for their travelling time, as must those who have to sleep-in at premises and cannot leave, so are effectively ‘on-call’ even if they are asleep. The back-pay bill for the so-called ‘sleep-in’ ruling is still being debated with Government as there is concern that it could cause many care providers to become insolvent. Don’t forget if you ask staff to

  • arrive before or stay after a shift to open/close up premises
  • go through security checks
  • undertake a ‘trial’ shift
  • attend a training course

then these periods of time must also be paid at NMW rates.

Benefits in kind

The only benefit in kind that can be taken into account alongside cash to establish if the NMW has been paid is for living accommodation. Where an employer provides accommodation to a worker they can make a deduction from net pay of £6.40 per day without that taking the rate below NMW. Where an employee has entered a salary sacrifice for any benefit in kind such as childcare vouchers or pensions, the hourly rate they receive post-sacrifice must still be at least the NMW rate. This will need checking each pay period for any staff whose rate is close to NMW.

Useful resources and top tips

5 areas you need to focus on to stay compliant:

  • Assessing who is a worker and is entitled to NMW
  • Paying the right rate for the person’s age and status
  • Not deducting amounts that you’re not entitled to
  • Paying for all the hours that the law says count as working time
  • Incorrectly calculating the hourly rate

We’ve looked at the first four but what is it about hourly rates that trips up employers?

  • Not realising that you can’t even make compulsory net pay deductions for meals, uniforms, tools or safety equipment if they reduce pay below NMW
  • Paying the apprentice rate before an apprenticeship starts or when the apprentice reaches 19 or the 2nd year of their apprenticeship
  • Counting the same pay elements for NMW as for tax and NI, for example bonuses unconsolidated allowances, overtime and shift premia don’t count for NMW

If you’re worried about NMW compliance and the guidance below doesn’t answer your query, then speak to the Acas helpline on 0300 123 1100. If they can’t assist they can refer you to the HMRC technical team.

For other information and useful resources visit: BEIS guide to calculating the NMW or watch HMRC’s webinar on NMW