National Minimum Wage Compliance

The minimum wage rates from April 2026 are: £12.71 per hour for workers aged 21 and over (the National Living Wage); £10.85 for those aged 18–20; £8.00 for under-18s (above compulsory school age); and £8.00 for apprentices in their first year or under 19. These rates are reviewed annually by the Low Pay Commission and take effect each April. Workers are entitled to the NMW regardless of how they are paid — hourly, daily, weekly, or as an annual salary.

Almost all workers are entitled to the NMW, including part-time workers, agency workers, casual workers, and workers on zero-hours contracts. Genuine self-employed individuals are not workers and are not entitled to the NMW — but misclassifying an employee or worker as self-employed does not change the legal entitlement. HMRC and employment tribunals look at the reality of the working relationship, not the label given to it.

Many employers underpay unintentionally. Common pitfalls include:

• Unpaid working time: travel time between work sites, time spent in mandatory training, time on-call at the employer's premises, and time spent waiting for work may all count as working time for NMW purposes
• Deductions from pay: deductions for uniforms, tools, accommodation, or shortfalls (e.g. till shortfalls) reduce NMW pay and can cause underpayment even when the headline rate appears compliant
• Salary sacrifice schemes: if a salary sacrifice reduces an employee's pay below the NMW, it is unlawful — workers on or near the minimum wage cannot participate in salary sacrifice schemes
• Tips and service charges: since April 2024, tips and gratuities paid through an employer cannot be used to make up the NMW — they must be in addition to it

HMRC enforces the NMW through targeted and complaint-driven investigations. If underpayment is found, HMRC issues a Notice of Underpayment requiring the employer to pay all arrears (calculated at current rates, not the rates at the time of underpayment) and a civil penalty of up to 200% of the arrears (minimum £100, maximum £20,000 per worker). Persistent or deliberate underpayers can be prosecuted, fined, and named on the government's public NMW naming scheme.

Employees can also bring claims in the employment tribunal or civil courts for NMW underpayment. There is no cap on NMW arrears claims. Keep payroll records for at least six years so you can demonstrate compliance if investigated. HMRC has the power to inspect payroll records and interview workers without notice.

The Employment (Allocation of Tips) Act 2023, which came into force on 1 October 2024, fundamentally changed the rules on tips and gratuities. The Act requires employers to pass on 100% of all qualifying tips, gratuities, and service charges to workers fairly and without deduction. The employer may operate a tips allocation system (using a tronc arrangement) but must ensure the system is fair and transparent. Employers cannot retain any portion of tips to subsidise wages or as a management charge.

Before October 2024, tips paid by card through an employer could be retained or reduced by the employer, provided the worker still received at least the NMW in basic pay. This is now prohibited. All tips paid to the business — whether by cash left at the table, card payments, or service charges — must be passed to workers. The statutory allocation must be done on a fair and transparent basis, and employers with tipping income are required to have a written tips policy and to keep tipping allocation records for three years.

Crucially, the Act confirmed that tips cannot be used to make up the NMW. This was previously a grey area; the Act closes it definitively. An employer who relies on tips to bring a worker's effective hourly rate up to the NMW is now clearly in breach of both the NMW rules and the tipping legislation. Workers can bring Employment Tribunal claims if tips are unlawfully retained, and HMRC can investigate and issue civil penalties. For hospitality businesses — restaurants, hotels, pubs, and takeaways — ensuring tips policy compliance is an immediate priority.