First published on Thursday, February 27, 2025
Last updated on Thursday, February 27, 2025
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Employee pay is an essential topic covered by UK employment law. And is incredibly important to both you as an employer and your employees.
Getting it right could save you from potential HMRC fines of up to £20,000 per underpaid worker, claims for unlawful deduction of wages, and your business being named and shamed.
The National Minimum Wage Act 1998 sets the minimum wage for workers across the UK. Ensuring that workers are not paid unacceptable low rates for their work. Governments attempt to set rates according to the cost of living and rate of inflation. With the intention of improving living standards across the country.
Why was the NMW act introduced?
Before 1998 there was no act to oversee minimum pay universally. Instead, different acts were used across industries. Setting a system of wage controls for those in some of the lowest paid sectors, particularly service industries as well as mining and unskilled manual labour roles.
When Labour returned to power in 1997 after 18 years it had long been a party policy, and so, with the support of the Liberal Democrats, the National Minimum Wage Act (1998) received Royal assent in July 1998 and took effect on 1 April 1999.
What the law says
The Act applies to all workers, this includes employees and anyone who is contracted to do work, this also covers agency workers and homeworkers.
The Secretary of State has the authority to determine who is included within the act and who is excluded. For example, the following types of workers are excluded under current law:
Au pairs
Family members in a family business
Share fishermen paid by a share of profits
Unpaid volunteers
Prisoners working during their sentence
This of course, also includes the self-employed, who are not considered employees but individuals who run their own business.
Further information was detailed in the National Minimum Wage Regulations 1999, which defined the work type included within the National Minimum Wage Act 1998. This explained that different work types are time work, salaried hours work, output work and unmeasured work.
When an employee is on certain types of leave, industrial action or are commuting to work, the principle does not apply. In any other instance, their pay should not fall below the minimum rate set by the government at the time of the pay reference period.
The National Living Wage: What’s the difference?
The National Living Wage is a newer concept that was introduced in April 2016. It implemented a high minimum wage rate for workers, initially over the age of 25, which now applies to workers aged 21 and over.
As of April 2025, the national living wage will be set at £12.21 rising from £11.44.
Wage rates for apprentices
Different wage rates are set for those completing an apprenticeship programme. A separate national minimum wage rate is set for apprentices aged between 16 and 18, as well as any 19-year-olds who are still completing the first year of their apprenticeship.
As of 2025, the rates for apprentices will increase.
To ensure that you are paying your apprentices correctly, stay informed with our apprentice pay rates article.
Is the minimum wage fair?
There has often been push-back from charities and campaigning organisations such as the Living Wage Foundation regarding the fairness of the minimum wage.
They argue that current rates for workers do not consider the costs individuals and families incur to live and survive across the country. Particularly highlighting the need for a separate London weighting system. They instead promote the ‘real living wage’ which is effectively a rate paid voluntarily by UK businesses who wish to benefit from providing their staff a wage based on cost of living, with a separate, higher rate for those based in London.
Having said this, many employers, especially those running small businesses, feel as though higher minimum wage rates could have negative impacts on their costs.
Despite the criticisms, the government reviews the minimum wage rates every year, with increases being implemented as the financial year comes to an end—in April.
Minimum wage rates from April 2025
As of April 2025, minimum wage rates increase for all wage bands. This includes apprentices who will receive the biggest pay increase. Below is a table detailing the rates:
Increases to rates apply to next pay reference period after the increase. So It’s important to be prepared.
To manage your payroll effortlessly, consider a payroll software. BrightHR payroll software and support services will help you in reducing payroll errors. Ensuring accurate pay calculations for your employees, including tax calculations and accurate deductions.
Enforcement of the act
As previously mentioned, HMRC are the government body that enforce the Minimum Wage Act. They handle complaints directly from employees, issue notices to employers, issue fines and even take employers to court.
If a complaint has been made to the HMRC they may:
Issue a notice of money owed by your business
Issue fines. This could be a fine of up £20,000 with this applying to each worker affected by the underpayment.
Take further legal action – take the business to court
Information of your business may be provided to the Department for Business and Trade (DBT). This gives them the right to publicly display your business name on a list.
Sometimes a full criminal investigation will be carried out. However, this is only in the event of a business repeatedly being non-compliant.
Stay on the right side of the law with BrightHR
In order to avoid facing the penalties of HMRC, make sure you are paying your staff the correct rate of pay. For those receiving the national minimum wage or national living wage, you must keep up to date with latest rates and stay aware of any amendments from the government.
With the help of HR software, you can rest assured knowing that you have a system to help streamline your processes, including your payroll, and a team of HR experts to support you in case of any queries.
Book a free demo with the BrightHR team today to discover the features for yourself.
