How employers can stop being caught out by National Minimum Wage issues

In mid-February the government published the latest list of employers that have been caught out not correctly paying staff and breaching National Minimum Wage legislation.

The list is one of the longest with more than 500 employers named. While some of the underpayments were very small, one employer was found underpaying staff to the tune of £5.1m. And worryingly, of the firms named, there were more than ten that are involved in the automotive sector.

Mark Stevens, a senior associate at law firm VWV, details that the legislation aims to ensure that “workers receive pay in the form of cash rather than benefits in kind”. He also states that “it seeks to stop unfair competition based on artificially low prices due to employers paying workers very low rates of pay.”

As to the mechanics, he says that the NMW sets the amount of pay due to most workers from school leaver age up to the age of 25, with the National Living Wage (NLW) applying to those aged 25 or over. All workers, except those who are genuinely self-employed, are entitled to receive the NMW or NLW.

The NMW/NLW is calculated by including most financial awards or payments, but excluding allowances such as regional or on-call allowances, unsocial hours payments, tips and gratuities, or any benefits in kind, with the exception of accommodation up to a specified amount.

Changes coming in April 2024

Stevens highlights that the now annual changes to the regime are on the horizon following the government’s acceptance of the recommendations of the Low Pay Commission. New rates of the NLW and NMW will come into force from April 2024.

“Currently,” says Stevens, “the NLW applies to those 23 and above. However, from April 2024 it will expand to include 21 and 22 year olds.” He continues: “The NLW will increase by 9.8% from the current £10.42 per hour to £11.44 per hour. For a full-time employee working 37.5 hours per week, this equates to a minimum annual salary of £22,308.”

As for younger employees and apprentices, they too will see significant pay increases from April 2024, with, as Stevens explains, 18-20 year olds’ hourly pay increasing to a minimum of £8.10 per hour. Additionally, 16-17 year olds and apprentices will see their pay increase to a minimum of £6.40 per hour “which,” says Stevens, “is a huge 21.2% increase from the current minimum in this bracket.”

It’s for this reason that he says that employers should pause to consider the impact that these increases may have on their business finances and pay structures. In particular, he warns that “an increase to the rates of pay for the lowest paid roles can create pressure on the whole pay structure of an organisation, decreasing the differential between an entry level role and first line management, for example.”

In some instances, a significant salary increase could result in an entry level role overtaking the first line manager. Consequently, he recommends that employers undertake a pay audit to examine the impact that these changes will have on their current pay structure to prepare for April 2024.


Under NMW legislation, employers have an ongoing obligation to keep certain records in relation to the hours worked by, and the payments made to, workers.

On this, Stevens explains that “all the information about the pay received by a worker in a particular pay reference period must be contained in a single document.” He says that records can be kept on paper or computer but since 1 April 2021 “records must be kept for a minimum of six years from the end of the pay reference period following the period to which they relate.”

The ‘pay reference period’ is defined as the period of time that the pay covers. So, for example, if paid daily, the pay reference period is one day, if it’s weekly, the pay reference period is one week, and it’s paid monthly, then the pay reference period is one month.

It’s important to note that, as Stevens points out, the pay reference period cannot be longer than a month.

Like other forms of employment legislation, the NMW is incredibly complex which is why Stevens has seen “underpayments being the result of a misunderstanding of the law rather than any deliberate failure by an employer to comply.”

Indeed, there are a number of common scenarios where he’s witnessed employers falling short of NMW. He recommends caution over five distinct problem areas.

Firstly, there’s employment status. Where this is misclassified or where a worker is ‘off-payroll’ employers can fail to pay the correct NMW. Then there are issues over salaried staff who are relatively lowly paid and regularly work long hours; employers fall short when taking into account the hours worked in relation to the rate of NMW.

Another area to keep tabs on is working hours. This may apply if a worker is required to arrive early or stay late for training, debriefing or staff meetings; these hours constitute ‘working time’ therefore they should be paid at NMW. Employers also need to be aware of staff uniforms as employers that require staff to pay for their own uniforms out of their salary can cause pay to fall below the NMW.

Lastly, employers sometimes slip up where they fail to increase a workers’ pay following a birthday which moves them into a new NMW bracket.

The repercussions of getting NMW wrong

For any regime to work there has to be a potential stick and so employers found in breach of the legislation may face significant legal repercussions.

Stevens says that “it’s important to remember that underpaid workers can launch formal and/or legal action. Those who think that they have suffered an underpayment of NMW can raise a formal grievance to their employer, complain to HM Revenue and Customs or bring a number of claims against their employers.”

In particular he warns that they can bring a claim for unlawful deduction from wages under section 13 of the Employment Rights Act 1996; a breach of contract, either in the employment tribunal or the County Court; or a claim for unfair dismissal or detriment under the National Minimum Wage Act 1998.

And then there are the financial penalties that can be brought to bear; employers found to have not paid their workers the NMW can face substantial fines – currently up to a maximum of £20,000 per underpaid worker.

Next on Stevens list is the risk of adverse publicity. As he says, “the government’s ‘name and shame’ scheme can put a negative spotlight on employers found to be in breach of the NMW legal requirements. This could result in significant damage to the employer’s reputation.”

And for the worst offenders there’s criminal prosecution. “This,” says Stevens, “can occur if employers persistently refuse to comply with the law and to co-operate with the compliance officers.”


The National Minimum Wage is nothing new and this year celebrates 25 years of operation. While it’s well known and there are some employers who deliberately seek to underpay staff, the majority just make accidental errors. For them the best advice is to look at the risk factors and seek to deal with them.

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