Guide

Paying the National Minimum Wage

Your obligations for minimum wage and record keeping.

Retail & Consumer Goods UK-wide

Most workers are legally entitled to be paid at least the National Minimum Wage (NMW). The National Living Wage (NLW) is the highest rate and applies to workers aged 21 and over. HMRC enforces NMW compliance and can investigate underpayments going back 6 years.

Who must be paid NMW

The NMW applies to workers, which is a broader category than employees. A worker is anyone who has a contract (written or verbal) to personally do work or provide services and the other party is not genuinely a client or customer.

Workers entitled to NMW include:

  • Employees (full-time and part-time)
  • Agency workers — entitled from day one of assignment
  • Casual and zero-hours contract workers
  • Piece workers and commission-only workers (if they are workers, not genuinely self-employed)
  • Interns and work experience placements — if they have a contract to perform work and receive something beyond expenses

Who is not entitled

  • Genuinely self-employed people
  • Company directors who are not also workers
  • Genuine volunteers (no contract, expenses only)
  • Family members living in the employer's home who share in tasks
  • Students on work placements of up to 1 year as part of a UK higher or further education course
  • Workers younger than compulsory school leaving age
  • Members of the armed forces

Pay reference periods and what counts

The NMW is calculated over a pay reference period — the length of time for which the worker is paid, up to a maximum of 31 days. A worker must be paid at least the NMW, on average, for every hour worked in each pay reference period.

Payments that count towards NMW

  • Basic pay (hourly, weekly, or monthly salary)
  • Incentive pay and performance bonuses paid in the pay reference period
  • Commission paid in the pay reference period
  • Piece rates and output payments
  • Accommodation offset (the only benefit in kind that counts)

Payments that do not count

  • Tips, gratuities, service charges, and cover charges
  • Premium for overtime or shift work (the basic rate portion counts, but not the extra premium)
  • Benefits in kind other than accommodation
  • Expenses and mileage payments
  • Pension contributions by employer
  • Redundancy payments

Deductions that reduce NMW pay

Some deductions are subtracted from gross pay before comparing against NMW:

  • Deductions for the employer's own use or benefit (till shortages, breakages, customer walkouts)
  • Deductions for items required for the job but not refunded (uniform costs, tools, safety equipment)
  • Salary sacrifice amounts

Tax, National Insurance, pension contributions, and student loan deductions do not reduce NMW pay.

Accommodation offset

Accommodation is the only benefit in kind that can count towards NMW pay. If you provide free accommodation, the offset amount (£10.66 per day or £74.62 per week from April 2025) is added to the worker's pay for NMW calculation purposes.

If you charge for accommodation at or below the offset rate, the charge is ignored. If you charge more than the offset rate, the excess is deducted from NMW pay.

Common compliance pitfalls

  • Salary sacrifice: arrangements must not reduce cash earnings below NMW — cap salary sacrifice deductions accordingly
  • Uniform deductions: requiring workers to buy or rent branded uniforms reduces NMW pay
  • Travel time: travel between work assignments during the working day must be paid — very common issue in care and multi-site employers
  • Mandatory training: time spent on required training (induction, health and safety) counts as working time
  • Salaried workers exceeding basic hours: if salaried staff regularly work unpaid additional hours, the effective hourly rate drops and may fall below NMW
  • Tips: under the Employment (Allocation of Tips) Act 2023, tips must be passed to workers fairly but cannot be used to top up pay to meet NMW

Record keeping

You must keep records sufficient to demonstrate NMW compliance for 6 years (extended from 3 years on 1 April 2021). Records must include:

  • Worker's name, address, date of birth, and National Insurance number
  • Total pay and total hours worked for each pay reference period
  • All deductions from pay
  • Type of work performed (salaried hours, time work, output work, or unmeasured work)
  • Any accommodation provided and charges made

Workers have the right to access their own NMW records. You must produce records within 14 days of a request. Failing to keep records or making false entries is a criminal offence.

Enforcement and penalties

HMRC enforces NMW on behalf of the Department for Business and Trade. From April 2026, enforcement transfers to the Fair Work Agency.

Civil penalties:

  • 200% of the total underpayment per worker
  • Minimum £100 per notice of underpayment, maximum £20,000 per worker
  • 50% reduction if you fully comply within 14 days of the notice
  • Arrears are calculated using the current NMW rate, not the rate when the breach occurred

Naming scheme: employers who owe £500 or more in arrears (£100 if prior enforcement history within 6 years) may be publicly named.

Criminal offences under NMW Act 1998 s.31 include refusing or wilfully neglecting to pay NMW, failing to keep records, making false entries, and obstructing enforcement officers. On indictment, the court can impose an unlimited fine and order director disqualification.

Dismissing a worker for asserting their NMW rights is automatically unfair dismissal with no qualifying service period required.

  1. Check you are paying the correct rate

    Verify each worker's age band and apply the correct NMW/NLW rate. Use the GOV.UK NMW calculator to confirm compliance.

  2. Review deductions and salary sacrifice

    Check that no deductions (uniforms, salary sacrifice, till shortages) reduce any worker's effective hourly pay below NMW.

  3. Count all working hours

    Include mandatory training, travel between sites, and on-call time at the workplace when calculating effective hourly rates.

  4. Keep records for 6 years

    Maintain records of pay, hours worked, deductions, and accommodation for every worker. Respond to worker record access requests within 14 days.

  5. Prepare for Fair Work Agency transfer

    From April 2026, enforcement transfers from HMRC to the Fair Work Agency. Review your compliance processes ahead of the change.

DBS checks for employers

When and how to request Disclosure and Barring Service (DBS) checks for employees. Includes check types, fees, regulated activity rules, and devolved nation differences.

Read guide