Things to watch out for when calculating minimum wage

minimum wage

Last month, HM Revenue and Customs (HMRC) released the first update from their National Minimum Wage (NMW) promotion team. Going forward, they plan to provide quarterly updates on certain things to watch out for when calculating the minimum wage.

You should sign up for the employer bulletins.


Why is it important to get the NMW calculation correct?

Getting NMW correct is important not only because it affects your staff but also because errors can lead to penalties.  What’s more, since 2018 those employers who make errors even if they are not intentional can risk being named and shamed.

To give you an example, In June 200 employers named for failing to pay their employees correctly.  We are not just talking about large employers because the list also includes sole traders.

As an employer, you really don’t need the negative publicity as recruitment is hard as it is.  So, you should understand what you need to watch out for when calculating the minimum wage. Understanding the law is part of your duties as an employer


Understanding NMW

The National Minimum Wage Act was implemented in 1998 by the Labour Government, and since then, it has been increased every year in April to reflect the cost of living and inflation. It is the minimum hourly pay that all workers can earn, and it varies based on their age.

The Current hourly rates are:

>23 years 21-22 years 18 – 20 years Under 18 years Apprentice
April 2023 £10.42 £10.18 £7.49 £5.28 £5.28


Part-time, full-time, and temporary workers are subject to these rates, except for company directors.

Once an individual reaches the age of 23, they will be entitled to the National Living Wage (NLW).

For the purpose of this blog, we will refer to both the National Minimum Wage (NMW) and the NLW collectively as NMW.

If you are paying your staff based on the number of hours, it is a simple calculation. Number of hours x Rate (as indicated above).  You just need to make sure you update it each April and maybe when the employee has a birthday.

The problem seems to be when you are paying annual salaries.  Just because it is an annual salary a lot of employers think they don’t need to check. But you are wrong. You still need to check and it can get a bit complicated.


NMW when salary is paid yearly


When you are paying an annual salary you must make sure it covers the minimum wage.

To check you divide the annual salary in the contract of employment by 12 (months) and then divide it by the contractual number of hours in a month.  You can exclude holidays or sick leave.

But whilst checking you need to be mindful of the following:

  • OVERTIME – It is important to keep a record of the overtime hours worked each month to ensure that the hourly rate remains at or above the National Minimum Wage (NMW) in the UK. Although you are not required to pay for overtime, you must ensure that the additional hours worked do not fall below the NMW. Therefore, it is always recommended to perform the necessary calculations every time overtime is worked but not paid.


  • COMMISSION – commission can count as part of wages but as is the nature of commissions it can vary each month. So, keep track of the hours worked by your staff whether it resulted in sale (and commission) or not.  Again do the calculations.


  • TIPS – Tips and gratuities do not count towards NMW


Problem areas for NMW you need to be aware of


Calculating an hourly rate requires knowledge of the total number of hours worked. However, there are four additional factors that are frequently ignored and can lead to issues. It is essential to be mindful of these circumstances too:

  1. Worker is on standby or on call in case they are needed.
  2. Waiting to collect goods or start a job
  3. Travelling between assignments or under direction from you as the employer. This does not include traveling from home to work.
  4. Training for work


It’s important to appreciate that how these qualify as work and what will count towards the total number of hours worked.

What next

Administering NMW is usually straightforward. However, there are certain areas where a lack of understanding can lead to trouble.  So be careful when you come across any of the anomalies mentioned here in the blog.  If you are not sure always seek help

If you need help with this or any other matters relating to payroll, you can email Priya at who will be happy to assist you.