The minimum wage in the United Kingdom and what employers must know
Reviewed by Mellow Editorial Team, HR & payroll content team
The National Living Wage and National Minimum Wage set legally binding floors on what workers can be paid. Get them wrong and you face financial penalties, public naming, and arrears liability — so understanding the rules precisely matters.
What the rates are and who they apply to
The UK minimum wage system has two tiers. The National Living Wage (NLW) applies to workers aged 21 and over. The National Minimum Wage (NMW) covers younger workers and apprentices at lower rates that vary by age band.
Rates are set by the government following recommendations from the Low Pay Commission and typically change each April. Because this article is general guidance rather than a live rate card, always check the current figures on GOV.UK before processing payroll — the consequences of using an outdated rate fall on you, not your payroll provider.
Every hour a worker is entitled to be paid for must meet the relevant rate. This sounds straightforward but creates complexity in practice, particularly around how "hours" are counted.
Which workers are covered
Almost every worker is covered, including:
- Part-time and casual workers
- Agency workers (where the agency is the employer)
- Workers on zero-hours contracts
- Homeworkers paid by output
- Agricultural workers
Genuine self-employed contractors are not covered. However, HMRC and employment tribunals look at the substance of the working relationship, not just what the contract says. If someone is directed, supervised and integrated into your operations, they may be classed as a worker even if their paperwork says otherwise — particularly given that the Employment Rights Act 2025 has strengthened day-one rights and broadened the scrutiny of employment status.
Notably excluded from NMW entitlement are company directors with no employment contract, volunteers in genuinely voluntary roles, and the genuinely self-employed.
How hours are calculated
Four different pay reference types determine how minimum wage compliance is measured:
Time work — paid by the hour. Straightforward: every hour worked must be paid at or above the floor rate.
Salaried hours work — a fixed salary for a defined number of hours. You must divide the annual salary by the total hours in the contract to check the effective hourly rate. If the worker regularly works more than their contracted hours, those extra hours can pull the effective rate below the minimum.
Output work — paid per piece or task. You must either pay above a set rate per piece, or demonstrate through a "mean hourly output rate" test that workers are, on average, earning at least minimum wage.
Unmeasured work — where hours are not set in advance. A daily average agreement may be used, but the calculation still has to satisfy the floor rate.
Common compliance failures include deducting costs from wages — for example, uniform charges, tools, or accommodation charges that push effective pay below the minimum. Accommodation is the only benefit employers can legally offset against minimum wage, and only up to a prescribed daily rate.
Your obligations as an employer
Keep records. You must keep sufficient payroll records to demonstrate compliance for at least three years. HMRC can inspect these at any time.
Pay on time. Underpayment, even accidental, triggers arrears liability from the date it occurred. HMRC enforcement can require you to repay all workers affected, not just those who complained.
Report accurately. Under Real Time Information, you submit a Full Payment Submission (FPS) to HMRC on or before each payday. Your payroll software should flag minimum wage issues, but the legal responsibility is yours.
Review rates each April. Build an April review into your payroll calendar so rate increases are applied from the correct date. Workers turning 21 (or crossing any age band threshold) mid-year are entitled to the higher rate from their birthday.
Notify workers. While there is no legal requirement to issue a separate notice of rate changes, providing a clear payslip — which is a statutory right — ensures workers can verify they have been paid correctly.
Enforcement and penalties
HMRC enforces minimum wage compliance through targeted inspections and in response to complaints. Penalties for non-compliance are calculated as a percentage of total underpayment across all affected workers, up to a maximum per worker. The government also operates a public naming scheme for employers found to have underpaid.
Penalties aside, underpayment creates employment tribunal exposure. A worker can bring a claim for unlawful deduction from wages without any qualifying service period — there is no minimum employment length required.
The reputational dimension is real too. Named employers appear on a published government list, which is accessible to job seekers, clients and the press.
Practical steps to stay compliant
- Confirm the current rates on GOV.UK at the start of each tax year and after any worker turns 21
- Audit your payroll against actual hours worked, not just contracted hours
- Review any deductions or benefit-in-kind arrangements that could reduce effective hourly pay
- Train your payroll and HR teams on the four pay reference types
- If you use an employer of record or managed payroll service, confirm in writing how rate changes are handled and who carries compliance responsibility
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This article provides general information only and does not constitute legal advice. For advice on your specific circumstances, consult a qualified employment lawyer or contact ACAS.
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