Most employers on the latest National Minimum Wage naming list thought they were paying their staff correctly. Here is what caught them out – and how to make sure it does not happen to you.
Earlier this month, the government published the names of 658 employers who had breached National Minimum Wage compliance rules. It was the first list released under the newly formed Fair Work Agency, and it made for uncomfortable reading.
Between them, these employers repaid more than £4.2 million to around 27,600 workers and collected roughly £7 million in penalties.
The instinctive reaction from many business owners will be: “That would never happen to us. We pay above minimum wage.”
But that is exactly what most of the employers on this list thought too.
Why National Minimum Wage compliance is harder than it looks
Let us be clear: this is not a list of rogue employers deliberately underpaying their staff. As one former HMRC policy official put it:
“It’s unlikely any company on that list would be deliberately paying someone below the national minimum wage. You wouldn’t have a scenario where a business is paying their employees £8 an hour even though the minimum wage is £12 an hour.”
What catches employers out is far more subtle. It is the complexities around deductions, excess hours and unpaid working time that can drag the effective rate of pay below the legal minimum – even when the headline salary looks perfectly safe.
Understanding these risks is essential for National Minimum Wage compliance.
The three main National Minimum Wage traps
Looking at the latest naming list, the breaches fall into three broad categories:
1. Deductions that reduce pay (39% of cases)
This is one of the most common National Minimum Wage compliance failures. An employee earns above minimum wage on paper, but deductions from their pay – for uniforms, equipment, training, or other costs – bring them below the threshold.
One real example involved a football club offering staff the chance to buy season tickets through payroll deductions. Perfectly well-intentioned. But because those deductions reduced take-home pay below the minimum wage, the club ended up on the list.
It does not matter that the employee agreed to the deduction. If it takes them below NMW, it is a breach.
2. Unpaid working time (33% of cases)
If an employee earns at or slightly above minimum wage but works extra hours that are not recorded or paid, their effective hourly rate drops.
This could be:
- Staying late to finish tasks
- Working through lunch breaks
- Time spent travelling between sites
- Logging in early to get set up before a shift
If those hours are not tracked and paid, the maths can tip the wrong way – and National Minimum Wage compliance fails.
3. Failure to apply a rate increase (16% of cases)
NMW rates change every April. If an employee’s age means they move into a higher band, or if the rate increases and payroll does not catch it, underpayment follows.
This is often a simple administrative slip – but it still counts as a National Minimum Wage breach.
The hidden trap for salaried workers
There is another National Minimum Wage compliance risk that catches employers off guard: excess hours for salaried workers.
For salaried-hours workers, contractual working hours are annualised for minimum wage purposes. But if someone works enough unpaid overtime, they can exhaust their contracted hours before the year is out.
When that happens, the additional hours must be included in the NMW calculation – even if the contract says they are unpaid.
The result? Even an employee earning £50,000 a year could technically be paid below minimum wage if they work enough extra hours.
This is not a theoretical risk. It is happening – and it is one of the least understood aspects of National Minimum Wage compliance.
The real cost of National Minimum Wage breaches
The financial penalties are significant – up to 100% of the arrears owed. But the bigger hit is often reputational.
The published list does not explain why each employer was included. It does not distinguish between a business that underpaid by £23,000 and one that underpaid by £8. The average underpayment was £154 per worker – hardly the stuff of headlines, but enough to land you on a public list.
And the timing makes it worse. These lists are often published years after the breach occurred. An employer might have spotted the problem, corrected it, repaid the affected staff and improved their processes – only to see their name published much later, with no context.
By then, the reputational damage is done.
Who is responsible for National Minimum Wage compliance?
This is where it gets tricky for many businesses. Responsibility for NMW compliance is often split across teams:
- Payroll is usually closest to spotting basic risks, through flags and checks in the system.
- HR needs to ensure accurate tracking of working time and any deductions.
- Finance or tax may need to oversee controls and review data for compliance.
If no one is clearly owning the risk, gaps appear. And those gaps are where National Minimum Wage breaches happen.
How to improve your National Minimum Wage compliance
The good news is that most of these risks are manageable – if you know where to look.
Audit your deductions
Review anything that comes out of employee pay – uniforms, equipment, salary sacrifice, loan repayments, season tickets, parking. Check whether any of these could take someone below NMW.
Track working time properly
If people are working extra hours – even informally – make sure you know about it. This is especially important for roles where unpaid overtime is common or expected.
Check your rate changes
Every April, review who is affected by NMW increases. Pay particular attention to younger workers moving into higher age bands.
Watch salaried-hours workers
If you have employees on annual salaries with set hours, monitor whether they are working significantly beyond those hours. The excess hours rule is real and it bites.
Assign clear ownership
Make sure someone is responsible for National Minimum Wage compliance – not just in payroll, but across HR and finance. Build in regular checks, not just annual ones.
National Minimum Wage compliance checklist
Use this quick checklist to review your current position:
- Do any deductions from pay risk taking employees below NMW?
- Are all working hours – including overtime, travel and setup time – recorded and paid?
- Have NMW rate changes been applied correctly this year?
- Are salaried workers tracked for excess hours?
- Is there clear ownership of NMW compliance across payroll, HR and finance?
- When did you last conduct a National Minimum Wage compliance audit?
If you are unsure about any of these, it is worth taking a closer look.
The bottom line
Most employers on the NMW list did not set out to underpay anyone. They got caught by technical complexities that are easy to miss if you are not looking for them.
The consequences – financial penalties, public naming, reputational damage – are real. But so is the opportunity to get ahead of this.
A bit of time spent reviewing your deductions, working time records and payroll processes now could save you a great deal of trouble later.
If you are not sure where your National Minimum Wage compliance risks might be, we can help you take a look. Sometimes a fresh pair of eyes is all it takes.
