Is your business at risk of an HMRC NMW investigation?

What are the National Minimum Wage rules?

The National Minimum Wage (NMW) rules are more complex than many employers realise. Even if you’re paying your workers the correct hourly rate, HMRC’s enforcement officers could still find your business in breach. These mistakes are financially damaging and can harm your company’s reputation.

The NMW regulations set out the minimum hourly pay that employers must provide to nearly all workers in the UK. These rates are updated annually, with the latest changes taking effect from 1 April 2025:

£12.21 (aged 21 and over)
£10.00 (aged 18 to 20)
£7.55 (aged under 18)
£7.55 (apprentice rate)

However, compliance isn’t as simple as paying the correct age-related rate per hour. Employers often inadvertently breach the rules due to misunderstandings about what counts as working time or NMW pay.

Employment law specialist Joanne Halford from our Leeds office explains more.

How does HMRC assess National Minimum Wage compliance?

HMRC determines whether a worker receives the National Minimum Wage by calculating if they earn, on average, at least the relevant rate per hour worked in a pay reference period. Crucially, not all forms of remuneration count towards NMW pay. Overtime premiums, shift allowances, and certain deductions may be excluded.

Common National Minimum Wage compliance mistakes

During an audit, HMRC enforcement officers will examine various employment practices that could affect NMW compliance, including:

Uniform deductions: If workers must supply part of their uniform (e.g., black trousers or black smart shoes), this cost may reduce their effective pay below the NMW threshold.
Unpaid breaks: If staff work through breaks without pay, this time may count as working hours.
Pre- and post-shift duties: Activities like opening up, attending handovers, or closing after shifts may be considered working time for the purposes of the NMW rules.
Clocking systems: Automated deductions (e.g., 15-minute increments) that don’t reflect actual time worked can lead to underpayment.
Salary sacrifice schemes: These can inadvertently reduce take-home pay below NMW, especially for workers earning close to the threshold.

These are just a few examples of how businesses can unintentionally fall foul of minimum wage laws.

What happens if your business breaches National Minimum Wage rules?

Failing to comply with NMW regulations can result in serious consequences:

Financial penalties: HMRC can demand arrears payments for current and former workers, going back up to six years. HMRC can also demand a penalty payment which can reach 200% of the underpayment, capped at £20,000 per worker.
Reputational damage: HMRC operates a naming and shaming policy, publishing the names of businesses found to be in breach on the Government website.
These outcomes can be damaging both financially and publicly, especially for businesses with a strong brand presence or customer-facing operations.

How can employers prepare for HMRC National Minimum Wage investigations?

Although NMW audits focus on financial calculations, those figures stem from your employment practices, including contracts, handbooks, and day-to-day operations. That’s why legal advice is essential if your workers are paid at or near the minimum wage threshold.

Our employment law specialists can help by:

Conducting a National Minimum Wage risk assessment and preliminary audit.
Delivering bespoke training to highlight NMW compliance red flags.
Advising throughout HMRC investigations, including strategies to reduce liability.
Ensuring all communications are protected by legal privilege, meaning they are not disclosable to HMRC.

If you’re unsure whether your business is fully compliant with National Minimum Wage laws, or if you’ve been contacted by HMRC, get in touch with our unrivalled nationwide employment law experts.

With 32 offices across the country, we’re here to help you navigate the complexities of NMW regulations and protect your business from costly mistakes.