Are your payroll practices compliant with the new minimum wage rates?
1 April 2025 signalled the first wave of payroll changes for businesses to contend with this year, including the increase to the National Living Wage (NLW) and National Minimum Wage (NMW).
If you are a business owner, have you reviewed how the new minimum wage rates affect your payroll obligations and whether your current practices remain fully compliant?
What are the new wage rates?
The NLW now applies to all workers aged 21 and over and has increased from £11.44 to £12.21 per hour.
Younger workers have seen even bigger increases to the NMW:
- 18 to 20-year-olds now earn £10.00 per hour (up from £8.60)
- 16 to 17-year-olds and apprentices earn £7.55 per hour (up from £6.40)
Note that for apprentices, this rate applies if they are either aged under 19 or are in the first year of their apprenticeship.
Apprentices aged over 19 or who have completed the first year of their apprenticeship are entitled to the NWM for their age group.
Non-negotiable – The legal obligations of minimum wage
No matter how small your business is, if you employ staff, you must pay them at least the correct minimum wage for their age and employment status.
Employers who underpay staff must repay any arrears immediately.
If HM Revenue & Customs (HMRC) finds evidence of underpayment, it can issue penalties of up to 200 per cent of the unpaid wages, capped at £20,000 per worker.
In addition to financial penalties, offending employers may be publicly named by the Government.
HMRC can also take criminal legal action and conduct unannounced inspections of your business premises, including reviewing payroll and employment records.
How to check if you are compliant
You must ensure that every eligible worker receives the minimum wage for the time worked during their pay reference period, which is usually the period over which they are paid (e.g. weekly or monthly).
This must be calculated based on actual hours worked, not just scheduled hours.
To check if your current pay structures are correct, you can use the National Minimum Wage and National Living Wage calculator for employers.
Pay particular attention to:
- Staff who have recently had a birthday and changed wage bands
- Apprentices completing their first year
- Workers paid by the piece or commission
- Deductions from wages that could reduce take-home pay below the legal threshold
Record-keeping requirements for employers
It is the employer’s responsibility to keep accurate records showing that workers have been paid at least the legal minimum.
These records must be retained for at least six years if created on or after 1 April 2021.
Records can be held in any format (digital or paper) but must be accessible and clearly demonstrate:
- Total pay (including bonuses, tips, or deductions)
- Total hours worked (including overtime and absences)
- Contracts or agreements outlining pay and hours
- Any reasons why a worker is not entitled to the minimum wage
Keeping accurate, well-organised payroll and employment records is your best defence in the event of an HMRC inspection.
Protect your business from penalties
If you are unsure whether your payroll practices comply with the latest minimum wage legislation, we can assist.
Our team can help you audit your systems, identify any potential risks, and ensure you remain fully compliant with all legal obligations.
Contact us today for compliance advice and to ensure you are paying your employees correctly.
