National Minimum Wage, maximum risk

When employees head for drinks after work this month, it could be their employers who end up with the headache. The Department of Business & Trade (DBT) is sending out half a million beer mats to pubs nationally to raise awareness of the National Minimum Wage (NMW) rise.  

Distributed in areas that include those with high underpayment complaints, the mats aim to prompt drinkers to check they’re paid correctly. If they haven’t been or even if they’re just unsure, it could mean big problems for the business. 

Distributed in areas that include those with high underpayment complaints, the mats aim to prompt drinkers to check they’re paid correctly. If they haven’t been or are even if they’re just unsure, it could mean big problems for the business.  

In most cases, NMW underpayment is unintentional rather than deliberate, but that won’t help employers. Even where unintended errors are identified, employers still face reimbursing impacted staff (past and present) and significant penalties:  

• Repayment of up to six years at the current minimum wage rates (£12.21 for over-21s since April 2025) 
• Making employer’s national insurance contributions and potential pension contributions 
• An automatic penalty of double any underpayment (up to £20,000 per employee), reduced by half if paid within two weeks 

The reputational damage is often substantial, too. The NMW Naming Scheme remains a key deterrent for DBT to focus employers’ minds. The last list, in 2024, named more than 500 businesses found to have failed to pay the minimum wage. Together, they were ordered to pay 172,000 employees almost £16 million, in addition to penalties and other associated employment costs. Among those fined were many big brands, while previous years have seen major companies write off millions in profits to repay technical breaches. 

An updated list is expected this year, and it would be surprising if it didn’t feature more household names. 

Three factors currently make NMW underpayment a particular risk.  

The first is that the rules are utterly uncompromising. Salary sacrifice is a good example. Whether or not employees enter these arrangements voluntarily, and regardless of the benefits they can bring, if salary sacrifice for pensions, cars, cycle-to-work schemes or other benefits takes an employee’s earnings below the NMW, the employer will be in breach. Subject to certain conditions, the business might avoid a penalty in such cases, but it will still be liable to repay employees for the shortfall. 

Despite a consultation in 2019, governments have consistently stuck to this rule. Their rationale is to protect against abuse of salary sacrifice by unscrupulous employers and ensure all workers receive a decent pay packet – even if it means some are less well off.  

The second challenge is the continual increases to the UK minimum wage that have pushed it to among the highest in the world on some measures. It is the second highest in the G7, relative to average wages, according to the government, and a 40-hour week on the main rate now equates to over £25,000 a year. 

As the gap between even median wages and the NMW has narrowed, an increasing number of employees on salaries well above it may fall below if they consistently work even an extra hour or less each day. 

Consider an example: An unmeasured employee on an annual salary of £30,000 doing a 40-hour week and contributing 6% to a pension via salary sacrifice. The post-sacrifce result is a take-home pay of £28,200. If they regularly work even two hours extra a week, their monthly pay after salary sacrifice falls to £2,350. Over a year, the result will be an underpayment compared to the NMW of about £2,500 (depending on the number of work days, periods of leave and so on). For 100 staff members over six years, that could result in a repayment of more than £1.5 million, with a potentially equivalent penalty. 

How would the authorities find out something the company may be unaware of? That’s the final factor raising the risk for employers: DBT’s recognition that employees can do the job of identifying breaches of the NMW better than any government agency. The beer mats campaign is just the latest in a series of efforts to recruit employees to police pay. It also targets a different region with radio adverts and billboards each quarter to encourage workers to speak out if they think they’ve been underpaid. These campaigns are usually successful.   

Enforcement figures show that three-quarters (74%) of errors identified by HMRC in relation to NMW non-compliance are the result of “targeted enforcement” (ie resulting from employee complaints). Once an investigation into a complaint is received, all the employer’s NMW compliance across the entire workforce is reviewed. That means that even if the original complaint proves unfounded, the company can find itself embroiled in a review of its pay, potentially stretching back years and uncovering other failures. 

To mitigate the risk of a lengthy and time-consuming NMW audit from HMRC brought on by an employee complaint employers need to understand where the risks lie within the business and nip them in the bud.  

First, employers should work to prevent employee misunderstandings that could prompt a complaint. Be absolutely clear and ensure employees understand exactly how pay is calculated. If you pay overtime in arrears, tell them; if deductions are taken from pay, make them transparent. If there’s any chance of misunderstandings, encourage staff to bring them to managers or HR. 

Second, employers need to work to avoid common risk areas. Again, communicating with your people is essential whether this is via line management training or updates to employee policies and/or intranet sites: Remind employees to take their breaks; where additional time is worked, consider how this working time is captured; ensure managers at different sites understand company policies relating to working time. 

Often, problems arise with varying practice across regions. In one office or site, employees simply clock in on time; in another, a manager might encourage staff to be in ten minutes early to change into uniform or set up ready for work, adding to their working time – and reducing their hourly pay rate. Again, that might be replicated across hundreds of employees.  

Employers must educate managers from the top down and across the organisation to raise awareness of the potential problems. If in doubt, take advice. With rising risks, they need to get the minimum wage right. Most want to pay staff fairly. No one wants to have to pay for the consequences of getting it wrong.  

Approval code: NTEH7052519