Why National Minimum Wage might not be as simple as you think

In September, the Government named nearly 660 employers that had failed to pay workers the National Minimum Wage.

 

The list included major household names, healthcare providers and NHS organisations. Around £4 million was repaid to more than 27,000 workers, alongside £7 million in penalties for the employers involved.

At first glance, it raises an obvious question: how can established organisations get something as fundamental as minimum wage wrong?

The answer is that National Minimum Wage compliance is often more complicated than simply checking the hourly rate on someone's contract.

Minimum wage isn't just an hourly rate

From April 2026, the National Living Wage for workers aged 21 and over is £12.71 per hour.

But paying somebody a contractual rate above £12.71 doesn't automatically mean an employer is compliant.

For minimum wage purposes, employers need to consider the pay a worker receives during each pay reference period, what counts towards that pay, any relevant deductions, and the hours that count as working time.

In simple terms, the calculation is:

Minimum wage pay ÷ eligible working hours = effective hourly rate

That effective rate must remain at or above the minimum wage rate that applies to the individual.

This distinction is where some employers can unintentionally fall short. Government guidance specifically identifies deductions, additional working time and incorrect calculations as common causes of underpayment.

Here are five areas worth checking.

1. Deductions and work-related expenses

Deductions can affect minimum wage calculations even when an employee's headline rate appears comfortably above the legal minimum.

For example, if a worker is required to pay for items connected with their job, such as uniforms, tools or equipment, those costs can reduce their pay for minimum wage purposes.

The same can apply to certain deductions taken directly through payroll.

The important point is to consider the worker's effective pay after any relevant deductions, rather than looking at gross salary or hourly rate in isolation.

2. Salary sacrifice

Salary sacrifice arrangements can offer valuable benefits to employees, but they also need to be considered when checking minimum wage compliance.

Under a genuine salary sacrifice arrangement, an employee gives up part of their contractual salary in return for a non-cash benefit.

That sacrificed amount no longer counts towards their pay for minimum wage purposes.

Employers therefore need to make sure that participation in schemes such as additional pension contributions, cycle-to-work arrangements or other benefits does not reduce the worker's pay below the applicable minimum wage.

3. Working time

Another common issue is failing to account for all of the time that legally counts as work.

Depending on the circumstances, this can include:

• compulsory training;

• team briefings or handovers;

• time workers are required to be available before or after a shift;

• travelling between clients or sites during the working day; and

• other additional time connected with carrying out the role.

If additional working time is not included in the calculation, the employee's true hourly rate can be lower than it first appears.

For example, an employee may be paid above minimum wage for their scheduled shift, but regularly arrive early for compulsory briefings. Once that additional time is included, their effective hourly rate could fall.

4. Changes in rates or circumstances

Minimum wage compliance also needs to keep pace with changes.

Rates normally change each April, while an individual worker's entitlement can also change because of their age or apprenticeship status.

For example, an apprentice aged 19 or over becomes entitled to the relevant minimum wage rate for their age once they have completed the first year of their apprenticeship, from the appropriate pay reference period.

Processes therefore need to identify these changes at the right time rather than relying on someone to spot them manually.

5. Agency and umbrella workers

For agency and umbrella workers, the payment chain can make calculations harder to understand.

The assignment rate paid by an agency to an umbrella company is not the same as the worker's gross pay.

Employment costs may need to be accounted for before the worker's gross taxable pay is calculated. Once the worker's actual pay and eligible working hours are established, they must still receive at least the applicable National Minimum Wage.

Accurate hours, deductions and payroll calculations are therefore particularly important where several organisations are involved in the supply chain.

The Fair Work Agency has changed the enforcement landscape

The rules themselves are not new, but their enforcement framework has changed.

The Fair Work Agency launched in April 2026, bringing several areas of employment-rights enforcement together within one organisation.

Its remit includes National Minimum Wage compliance, regulation of employment agencies and action against labour exploitation.

September's announcement was the first National Minimum Wage naming round since the agency was established, with nearly 660 employers named.

For employers, that makes good payroll governance increasingly important.

Most underpayments aren't necessarily deliberate

Many National Minimum Wage breaches arise from calculations, processes or deductions rather than an employer deliberately deciding to pay someone less than the legal rate.

But the outcome for the worker is the same.

That's why employers should look beyond the headline hourly rate when reviewing compliance.

Check the hours actually worked. Review deductions and salary sacrifice arrangements. Make sure changes in age, apprenticeship status and statutory rates are reflected promptly.

And if you use an external payroll or umbrella provider, ask them to demonstrate how their National Minimum Wage calculations are checked.

At BoostPay, our payroll processes are independently audited through SafeRec, helping provide additional assurance that workers are being paid accurately and compliantly.

Want to understand more about how we manage payroll compliance?

Speak to the BoostPay team to find out more.