Paying Above Minimum Wage? You Could Still Be Breaking the Rules

Just because you’re paying your employees above the National Minimum Wage doesn’t automatically mean you’re getting it right.

It sounds strange, doesn’t it?

You’ve checked the hourly rates, updated your payroll and made sure everyone is earning at least the legal minimum.

So surely that’s everything covered?

Unfortunately, not always.

Unpaid working time, salary sacrifice arrangements, uniform costs and certain deductions can all affect National Minimum Wage compliance.

And for employers, even an unintentional mistake can result in underpayments, financial penalties and the need to repay wages.

Here’s what small businesses need to be aware of.

What is the current National Minimum Wage?

From 1 April 2026, the statutory hourly rates are:

The apprentice rate applies to apprentices under 19, or those aged 19 and over who are in the first year of their apprenticeship. Other eligible apprentices must receive the minimum wage for their age.

These are the legal minimum rates. For wider April 2026 payroll changes, see our guide on the Fair Work Agency and wage updates.

Simply paying an employee £12.71 per hour, for example, doesn’t necessarily guarantee compliance.

1. Are you accounting for all working time?

Imagine an employee is contracted to work 9am until 5pm.

However, they’re regularly expected to arrive 15 minutes early to prepare for the day, attend meetings after their shift or complete mandatory training outside their normal hours.

Are those additional hours being included when checking their pay?

They may need to be.

Working time for National Minimum Wage purposes can include:

• Time spent working before or after scheduled shifts.
• Compulsory training.
• Certain time spent travelling between work assignments.
• Time when an employee is required to remain at or near their workplace and available for work.

Not every minute spent at work or travelling counts. Ordinary commuting and unpaid rest breaks, for example, are generally excluded, and different rules can apply depending on the type of work.

But if employees are regularly working additional hours without those hours being properly accounted for, their effective hourly pay could fall below the legal minimum.

2. Salary sacrifice could be causing a problem

This is an area that can easily be overlooked.

Salary sacrifice arrangements allow employees to give up part of their contractual cash salary in exchange for a benefit.

Examples include:

• Pension salary sacrifice schemes.
• Cycle-to-work schemes.
• Certain company car arrangements.
• Other eligible benefits provided through salary sacrifice.

While these arrangements can offer advantages, salary sacrifice must not reduce an employee’s pay below the applicable National Minimum Wage.

Here’s a simple example

An employee aged 21 or over earns £13.50 per hour and works 160 hours in a monthly pay period.

Their monthly contractual pay before salary sacrifice is:

They enter into a genuine salary sacrifice arrangement that reduces their monthly cash salary by £150.

Their remaining cash salary is £2,010.

That’s below the current National Living Wage of £12.71.

In this simplified example, assuming no other relevant pay adjustments, the arrangement would create a minimum wage problem.

The important point is that an employee’s original salary might be above the minimum wage, but the amount sacrificed can change that position.

It’s also important to distinguish salary sacrifice pension arrangements from ordinary employee pension contributions. They are not treated in the same way for National Minimum Wage purposes.

Employers offering salary sacrifice should have checks in place to ensure employees don’t fall below the statutory minimum, including where their hours or pay change.

3. Uniforms and work-related costs

Do your employees have to purchase their own uniforms, protective clothing or equipment?

Perhaps they’re required to wear a particular type of clothing or buy specific tools for their job.

These costs can affect National Minimum Wage calculations, even where the employee purchases the items themselves rather than through payroll.

For example, if an employee is paid only slightly above minimum wage but has to purchase required work clothing at their own expense, that cost could bring their pay below the legal minimum for the relevant pay period.

And it doesn’t necessarily need to be a uniform with your company logo.

Even a requirement to wear particular clothing, such as black trousers and a black top, can be relevant.

Employers should consider whether employees are being required to meet work-related costs and whether those costs need to be taken into account.

4. Not all payroll deductions are treated the same

It’s easy to assume that any deduction reducing an employee’s take-home pay could create a minimum wage breach.

But that’s not how the rules work.

Income Tax, National Insurance and ordinary employee pension contributions, for example, do not generally reduce pay for National Minimum Wage purposes.

However, certain deductions or payments connected with employment can reduce the amount counted towards minimum wage compliance.

These can include some costs relating to uniforms, tools, equipment and mandatory training.

The treatment depends on the nature and purpose of the payment or deduction.

This is why employers need to look beyond the net pay figure on a payslip — and why deductions from final pay need separate consideration too.

5. Salaried employees aren’t automatically exempt

Another common misconception is that minimum wage checks only matter for hourly-paid employees.

They don’t.

Employees receiving an annual salary must still receive at least the applicable minimum wage for their qualifying working hours.

And calculating those hours isn’t always as straightforward as dividing annual salary by 52 weeks.

Special rules apply to workers who meet the legal definition of salaried hours work, including how their basic annual hours and additional hours are calculated.

For example, an employee might receive a fixed monthly salary but regularly work significantly more hours than their contract provides for.

Depending on their working arrangements and the applicable calculation rules, those additional hours could create a minimum wage issue.

It’s particularly important to review salaried employees who regularly work overtime without additional pay.

6. Are you keeping the right records?

Employers must keep sufficient records to demonstrate that they are paying workers at least the National Minimum Wage.

These records must generally be retained for at least six years under the current rules.

Depending on the business and the employees’ working arrangements, relevant records might include:

• Payroll and payment records.
• Hours worked, including relevant additional hours.
• Employment contracts and working arrangements.
• Salary sacrifice agreements.
• Records of deductions and work-related expenses.
• Training and attendance records where relevant to minimum wage calculations.

There isn’t one prescribed format that every employer must use.

The important thing is being able to demonstrate that employees have received the correct minimum wage for each relevant pay reference period.

Simply having payslips showing an hourly rate may not be enough if those records don’t reflect the hours actually worked.

7. What happens if you get it wrong?

National Minimum Wage breaches can have serious consequences, even where the employer didn’t deliberately underpay anyone.

Depending on the circumstances, enforcement action can involve:

• Repayment of outstanding wages.
• Financial penalties, potentially up to 200% of the underpayment, subject to statutory limits.
• Public naming of employers under the government’s naming scheme.
• Legal proceedings in more serious cases.

Employers should also remember that underpayments may affect more than one employee or pay period.

A small error repeated over several months can quickly become a much larger liability.

What should employers be checking?

You don’t need to wait for a complaint or an inspection to review your minimum wage compliance.

A few practical checks can help:

1. Check the current rates and ensure employees are receiving the correct rate for their age and apprenticeship status.
2. Review actual working hours, including relevant additional hours, training and travel.
3. Check salary sacrifice arrangements, particularly for employees paid close to minimum wage.
4. Review deductions and employee expenses that could reduce minimum wage pay.
5. Check salaried employees, especially where they regularly work additional hours.
6. Maintain accurate records and ensure you can demonstrate compliance for each pay reference period.

These checks should form part of your regular payroll processes, rather than something you only look at once a year.

It’s about more than getting the hourly rate right

Payroll isn’t just about paying employees on time.

It’s also about making sure their pay has been calculated correctly, the right information has been recorded and the business is meeting its legal obligations.

Sometimes the things that cause problems aren’t immediately obvious from a payslip.

A salary sacrifice arrangement, an extra half-hour worked each day or an employee purchasing their own uniform might seem relatively minor.

But when it comes to National Minimum Wage compliance, those details matter.

If you’ve made a payroll error, our guide on what to do when you spot a payroll mistake may also help.

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