National Minimum Wage, tips, and pay compliance in hospitality

NMW compliance risks in hospitality

Hospitality has one of the highest rates of National Minimum Wage non-compliance of any UK sector. HMRC actively targets the industry through its NMW enforcement programme, conducting investigations triggered by worker complaints, data analysis, and sector-wide campaigns.

Non-compliance is often unintentional. The interaction between tips, accommodation charges, uniform costs, and unpaid working time can inadvertently reduce a worker's effective hourly rate below the legal minimum. Understanding these risks is essential to avoid penalties and public naming.

The accommodation offset

If you provide accommodation to workers (common in hotels, live-in pubs, and rural hospitality), you can apply the accommodation offset when calculating NMW. This is the only benefit-in-kind that can count towards NMW.

How the offset works

The maximum offset for 2026/27 (from 1 April 2026) is £11.10 per day (or £77.70 per week). This means:

• If you provide free accommodation, you can count up to £11.10 per day as part of the worker's pay when calculating whether they meet NMW
• If you charge for accommodation, only the difference between the charge and the offset amount affects the NMW calculation
• If you charge more than the offset (more than £11.10 per day), the excess reduces the worker's pay for NMW purposes

Practical example

A hotel charges a live-in worker £15 per day for accommodation. The offset is £11.10. The excess charge of £3.90 per day is deducted from the worker's pay for NMW calculation purposes. Over a 5-day working week, this reduces their effective pay by £19.50. If this takes their hourly rate below NMW, you are in breach.

Tips and NMW

Tips, gratuities, and service charges never count towards National Minimum Wage, regardless of how they are collected or distributed. This is a common area of confusion and non-compliance in hospitality.

Since the Employment (Allocation of Tips) Act 2023 came into force in October 2024, you must pass on all qualifying tips to workers fairly and transparently. But even before this legislation, tips could never be used to top up wages to meet NMW. The two requirements are separate: you must pay at least NMW before any tips are added, and you must distribute tips fairly on top of that base pay.

Common mistakes that breach NMW

Unpaid trial shifts

A trial shift described as unpaid can still create an entitlement to the minimum wage. What counts is whether it is genuinely part of recruitment, how long it lasts, how closely the person is observed, and whether their work gives you value beyond assessing them. The guidance on GOV.UK says an unpaid trial lasting a few hours may be reasonable and not create an entitlement to the minimum wage. Its example is a two-hour trial for a café waiter, with the owner watching, and a genuine job advert. It also says a trial lasting longer than one day is likely to be paid work in all but very exceptional circumstances. No law sets a maximum length, and each trial is judged on its facts.

If officers find that a trial was work and was not paid, they can take enforcement action, such as a notice of underpayment and public naming. The Fair Work Agency is responsible for NMW enforcement, and HMRC officers carry it out for the agency in 2026/27. If in doubt, pay the worker.

Uniform costs

If you require workers to purchase or maintain a specific uniform, and the cost reduces their effective pay below NMW, you are in breach. This applies to:

• Requiring workers to buy specific clothing, shoes, or accessories
• Deducting uniform costs from wages
• Requiring workers to pay for dry cleaning of branded uniforms

Either provide uniforms free of charge or ensure the cost does not reduce pay below the minimum.

Deductions from wages

Any deduction from wages (for breakages, till shortages, staff meals, or parking) that reduces pay below NMW is unlawful. You may make deductions as long as pay does not fall below the minimum after the deduction is applied.

Unpaid working time

Time spent opening up, cashing up, cleaning after service, attending mandatory training, or travelling between sites during the working day all count as working time for NMW purposes. If this time is not included in paid hours, the worker's effective hourly rate may fall below NMW.

Record keeping and HMRC enforcement

You must keep payroll records for at least six years showing hours worked and pay received for each worker (the NMW record-keeping period was extended from three to six years from 1 April 2021). These records are your primary defence if HMRC investigates.

What records to keep

• Hours worked each day (including start and finish times)
• Gross and net pay for each pay period
• Any deductions made and the reason for each
• Accommodation charges and offset calculations
• Records of tips received and distributed
• Training time and any time spent on non-productive duties

HMRC investigation process

HMRC NMW investigations can be triggered by a worker complaint, a targeted sector campaign, or data analysis. Investigators will request payroll records, interview workers, and calculate whether the effective hourly rate meets the minimum. Investigations can cover up to six years of pay records.

If underpayment is found, HMRC issues a Notice of Underpayment requiring you to pay arrears to all affected workers (calculated at current NMW rates) plus the penalty. You have 28 days to appeal or comply.