Employers and the minimum wage
Employers must pay workers the correct minimum wage.
What’s not included in minimum wage calculations
Some payments must not be included when the minimum wage is calculated.
- payments that should not be included for the employer’s own use or benefit, for example if the employer has paid for travel to work
- things the worker bought for the job and is not refunded for, such as tools, uniform, safety equipment
- tips, service charges and cover charges
- extra pay for working unsocial hours on a shift
Find out what counts as working time.
What’s included in minimum wage calculations
Some payments must be included when the minimum wage is calculated.
- Income Tax and National Insurance contributions
- wage advances or loans
- repayment of wage advances or loans
- repayment of overpaid wages
- things the worker paid for that are not needed for the job or paid for voluntarily, such as meals
- accommodation provided by an employer above the offset rate (£9.10 a day or £63.70 a week)
- penalty charges for a worker’s misconduct
John is 27 and works 40 hours a week. He earns £10.50 per hour or £420 a week.
He pays £10 a week to rent his uniform and the money’s not refunded.
To calculate his minimum wage, John’s employer must deduct the uniform rental from the pay.
This means John makes £410 per week (£420 minus £10) which is £10.25 per hour. This is below the minimum wage rate of £10.42.
John’s employer will need to pay the arrears back to John.
Read the detailed guidance on calculating the minimum wage for more on what counts and does not count towards the minimum wage, eligibility, how to calculate the minimum wage and how it is enforced.
It’s a criminal offence for employers to not pay someone the National Minimum Wage or National Living Wage, or to fake payment records.
Employers who discover they’ve paid a worker below the correct minimum wage must pay any arrears immediately. Use the National Minimum Wage and National Living Wage calculator to check a worker has been paid correctly.
HM Revenue and Customs (HMRC) officers have the right to carry out checks at any time and ask to see payment records. They can also investigate employers if a worker complains to them.
If HMRC finds that an employer has not been paying the correct rates, any arrears have to be paid back immediately. There will also be a fine and offenders might be named by the government.
It’s the employer’s responsibility to keep records proving that they are paying the minimum wage. These records must be kept for at least 6 years if they:
- were created on or after 1 April 2021
- still had to be kept on 31 March 2021 under the previous rule that records must be kept for 3 years
The period records must be kept for starts from the last day of the pay reference period after the one they cover.
They do not have to be kept in any particular form, for example they can be paper or computer records. But employers must be able to produce records for an individual pay reference period in a single document.
Most employers use their payroll records as proof of:
- total pay - including pay deductions, allowances and tips
- total hours worked - including absences and overtime
Employers may also need to keep records such as:
- agreements about working hours, pay and conditions, such as contracts
- documents that show why a worker is not entitled to the minimum wage
Pay reference periods
Pay reference periods are usually set by how often someone is paid, for example one week, one month or 10 days. A pay reference period cannot be longer than 31 days.
A worker must be paid the minimum wage, on average, for the time worked in the pay reference period.