From 1 April 2025, the National Minimum Wage (NMW) will increase.
The new hourly rates are:
- 21 and over – £12.21 per hour
- 18 to 20 – £10.00 per hour
- Under 18 and apprentices – £7.55 per hour
This means higher costs for businesses and an increased risk of payroll errors.
Miscalculating wages, even unintentionally, can lead to penalties, backdated payments, and HM Revenue & Customs (HMRC) investigations.
One of the most common mistakes employers make is misunderstanding what counts towards minimum wage calculations.
What is excluded from minimum wage calculations?
Certain payments and deductions do not contribute to minimum wage pay, including:
- Work-related deductions – If an employee has to purchase a uniform, tools, or safety equipment and is not reimbursed, this reduces their actual wage.
- Commuting costs – Employer-paid travel to and from work is not considered part of their wage.
- Tips, service charges, and cover charges – These do not count towards meeting minimum wage obligations.
- Additional pay for unsocial hours – Pay enhancements for night shifts or weekends are separate from minimum wage.
What is included in minimum wage calculations?
Employers should ensure they correctly account for:
- Gross wages – Minimum wage is based on pay before deductions for tax and National Insurance.
- Wage advances and repayments – Any advance on wages or repayment of a loan does not affect the minimum wage calculation.
- Employer-provided accommodation – If accommodation is provided at a lower cost than the official offset rate (£9.99 per day), the difference can be included.
- Overpaid wages being repaid – If an employee repays an overpayment, their gross wage still counts in full.
- Voluntary deductions – Deductions for meals at work (if optional) do not reduce minimum wage calculations.
The importance of calculating minimum wage correctly
Errors in minimum wage compliance can lead to serious consequences, including:
- HMRC audits – Inspectors can check payroll records at any time.
- Backdated wage payments – Any underpayments must be reimbursed in full.
- Penalties – Fines of up to 200 per cent of the underpayment (capped at £20,000 per worker).
- Public naming and shaming – The Government publishes a list of employers who fail to comply.
With these wage increases coming soon, businesses must review their payroll systems and ensure compliance.
If you need expert support, contact us today.