Employers continue to fall foul of the NMW rules as evidenced by the latest “naming and shaming” list issued on 20 October 2025:
While many of the underpayments to employees are inadvertent and historic, it is clear that there is still some way to go before all employers can confidently confirm that they always pay the NMW.
Most employers state that they always pay either at or well above the NMW hourly rates and so do not go beyond that to double check various aspects of their terms and conditions to ensure that working time has been correctly recorded and paid, deductions are not made from gross pay, and the correct hourly rate is paid to apprentices and those employees who have moved between age brackets and who should then be paid a higher hourly rate.
Often the error is not spotted because, between Finance, HR and payroll, it is not wholly clear of the employee’s terms and conditions, the working arrangements of those employees and who is responsible for those checks. Even if payroll is outsourced, or a salary sacrifice scheme is implemented by a third party, the onus remains on the employer to continue to monitor the NMW.
How do employers ensure that their NMW compliance is 100% correct?
What is the background?
The NMW legislation was introduced in 1999. Employers must ensure their employees are paid at or above the prescribed NMW rate.
In very simple terms, it is calculated with reference to the number of hours an employee has worked in a period and the amount they have been paid for that work. However, calculations are often far more complex, especially in relation to deductions from pay, such as salary sacrifice and what constitutes a pay period for NMW purposes.
What is the issue?
HMRC has invested heavily in its NMW investigation teams. Their approach includes targeting specific regions (including the North East) and sectors. In addition, their strategy also includes approaching employees, making them aware of potential issues which may result in them not being paid NMW, and asking them to contact HMRC if they have a concern.
To determine whether an employee is being paid at or over NMW rate often requires the input of a number of key stakeholders, including:
- HR
They will have issued the contracts of employment and will be aware of remuneration packages, including any deductions that may have been made. They are also likely to be responsible for employee benefits, such as savings and purchase schemes, which often give rise to NMW issues. - Payroll
They will know the number of hours worked each period and the rate of pay, but may not know the amount of voluntary overtime or additional unpaid hours, both of which impact on NMW calculations. - Finance
HR and payroll may fall under the control of Finance and they are likely to be responsible for any process, controls and monitoring that are in place to ensure NMW Compliance.
There is the potential that nobody has overall responsibility and lack of a clear process and adequate controls could lead to a significant NMW underpayment and penalty.
What do employers need to consider?
The key questions to be addressed are:
- Who is ultimately responsible for ensuring compliance; and
- Are they able to demonstrate to HMRC that there are no errors.
Some of the common problem areas include:
- Establishing the relevant pay period for each employee;
- Deductions made from pay, for example:
- Expenses connected with the job (uniforms and expenses such as tools);
- Those in relation to savings schemes and in-house canteens;
- Reductions in the hourly rate for salary sacrifice schemes;
- Work related deductions (such as administration costs on attachment of earnings); and
- Deductions for the provision of accommodation in lieu of salary (where the statutory offset amount is not used).
How can UNW Help?
- We support clients throughout HMRC enquiries into NMW, including risk assessment, managing a review and negotiating with HMRC if required.
- We facilitate bespoke training sessions to explore key areas of risk within an organisation.
Our specialists can also undertake a full NMW review to establish whether an employer has paid the correct amount of NMW to their workers. This will include a review of:
- Your pay elements and rates of pay;
- The size of your workforce and the type of work your workers carry out;
- The number of workers who may not have been paid at least the correct rate of NMW;
- Changes to the NMW rates; and
- Changes in the contracted hours or pay rates of your workers.
In addition, if you need to self-correct, we are able to assist you with the calculations, which include converting the liability to reflect the current NMW rate.
If you would like to discuss how we can help you, or have any other employment taxes related queries, please get in touch with us at employmenttaxesteam@unw.co.uk
