What Are the Rules Around Paying the National Minimum Wage?

By Andrew Willis
26 Mar 2018

On April 1 2018 the National Minimum Wage (NMW) rates increased to £3.70 for apprentices, £4.20 for 16-17 year olds, £5.90 for 18-20 year olds and the adult rate rose to £7.38.

The new ‘Living Wage’ for workers aged 25 and over, which has effectively added an additional tier to the National Minimum Wage, increased from £7.50 to £7.83. We are all aware of our obligation to ensure that a worker is paid at least the National Minimum Wage rate for their appropriate banding but what if for some reason this doesn’t happen?

How Does HMRC Find Out?

It is normally the worker themselves that reports a NMW breach to HMRC although it is possible for anyone to do so. HMRC also conduct, on occasion, random checks such as during the recent campaign about National Minimum Wage compliance and they are known to target sectors where NMW is commonly paid. It is a criminal offence to fail to pay at least the appropriate rate of NMW to a worker and so it should be taken seriously. If an HMRC investigation shows that the employer has failed to meet the requirements then any arrears will have to be rectified and the responsibility for underpayment can go back six years. HMRC can also impose a penalty of up to 200% of wages owed, capped at £20,000 per worker. In serious cases of non-compliance employers may be tried in a crown court and subject to an unlimited fine.

What Is the ‘Naming & Shaming’ Initiative?

Since February 2013 the Government has also introduced an initiative of naming and shaming businesses that have failed to comply, which can hit small businesses especially hard with the negative publicity such matters bring. It also heightens the prospects of future checks by HMRC which can be very time consuming even if no wrongdoing is found. This year 197 employers were named and as well as having to compensate workers they were fined £1.3 million after being found to be underpaying. The latest list included big names such as TGI Fridays, Marriott Hotels and Karen Millen, as well as smaller companies including hair dressers, cafes and even football clubs.

What If Underpayment Was Made by Accident?

Many underpayments are made in error and are not devious employers seeking to pull the wool over the eyes of ignorant employees, however, the penalties will still apply. Explanations for failing to meet the NMW rate have included situations where tips were used to top up pay, examples of workers' wages being docked to pay for their Christmas party and cases where staff have had to pay for their own uniforms.

How Can We Avoid Underpayment?

When calculating the National Minimum Wage an employer needs to ensure that the worker has been paid at least the appropriate rate, on average, for time worked in a pay reference period. This is normally the period over which the workers pay is calculated, eg where a worker is weekly paid the reference period will normally be one week. The reference period can be no longer than one month so if an employer does pay workers at intervals more than a month apart, they need to still use a one month reference period when determining whether legal requirements have been met.


In light of the potential penalties adherence to the requirement to pay the legal minimum wage is therefore something that should be in the forefront of any employers mind. Not only to take into consideration the annual increases to the levels of NMW, but also where there is a practice of deducting money from a workers wage, or in cases where members of the workforce straddles the age bands or where they are applying the apprentice rate. It is an employer’s responsibility to prove, if needed that NMW has been paid so good record keeping is vital in any defence to a potential claim.

Expert Advice

If you think you’re at risk or have any questions in relation to the National Minimum Wage, please contact our employment law experts today on 0808 145 3382.

About the Author

Andrew Willis

Andrew Willis is the senior manager of the Litigation and Employment Department and assumes additional responsibility for managing Croner’s office based telephone HR advisory teams, who specialise in employment law, HR and commercial legal advice for small & large organisations across the United Kingdom.





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