Minimum wage and living wage
Minimum wage rates and eligibility
For the tax year 6 April 2025 – 5 April 2026, the statutory minimum hourly rates are:
National Living Wage (NLW) for workers aged 21 or over: £12.21
National Minimum Wage (NMW) for ages 18–20: £10.00
NMW for under 18s: £7.55
Apprentice rate: £7.55
All workers must be at least school leaving age to qualify for the NMW, and 21 or over for the NLW. These rates apply regardless of contract type (full-time, part-time, agency, zero-hours, etc.) and cover most categories of workers, including casual, probationary, and foreign workers. Employers must pay at least the relevant minimum wage for all hours worked in each pay reference period, even if the worker is not paid by the hour (e.g., salaried or piece work).
Difference between national living wage and national minimum wage
The National Living Wage is the statutory minimum hourly rate for workers aged 21 and over, set at a higher level to reflect increased living costs for adults. The National Minimum Wage applies to workers under 21 and apprentices, with lower rates for younger workers and those in training. The NLW is always higher than the NMW, and employers must ensure the correct rate is paid according to the worker’s age and status. The NLW and NMW are set by government based on recommendations from the Low Pay Commission and are legally enforceable; the voluntary “Living Wage” promoted by the Living Wage Foundation is not statutory and should not be confused with the NLW.
Apprentice rates and eligibility
The apprentice rate of £7.55 per hour applies if the apprentice is either under 19, or aged 19 or over and in the first year of their current apprenticeship. Once an apprentice aged 19 or over completes the first year of their apprenticeship, they must be paid at least the minimum wage rate for their age group. Employers must regularly review apprentice ages and progression to ensure the correct rate is paid, as errors are a common source of underpayment.
Impact on wages of living in the employer’s home
If a worker lives in the employer’s home and is not a family member, they are generally entitled to the minimum wage. The only exception is for family members living in the employer’s household and working in the family business, who may be exempt. For other live-in workers, such as au pairs or domestic staff, the minimum wage applies unless they are treated as a family member and share in family life. Where accommodation is provided, employers may deduct up to the “accommodation offset” (£10.66 per day for 2025/26) from pay; any deduction above this reduces the worker’s pay for minimum wage purposes. Deductions for accommodation must not reduce pay below the minimum wage, except as allowed by the offset.
The importance of the pay reference period
The pay reference period is the period for which a worker is paid (e.g., weekly, monthly, daily), and cannot exceed one month. Minimum wage compliance is assessed for each pay reference period: the worker’s total gross pay (excluding non-qualifying payments) is divided by the total hours worked in that period to check the average hourly rate meets or exceeds the minimum wage. Rate increases or changes in eligibility (e.g., due to age) take effect from the start of the next pay reference period after the change occurs. Accurate calculation and record-keeping for each pay reference period is essential for compliance.
Exclusions from the minimum wage
Certain categories of individuals are excluded from minimum wage entitlement, including:
Self-employed individuals running their own business
Volunteers and voluntary workers
Company directors without an employment contract
Members of the armed forces
Family members living in the employer’s home and working in the family business
Workers under school leaving age
Students on work experience placements as part of a higher or further education course (up to one year)
People shadowing others at work
Prisoners and members of religious communities
Employers must assess each worker’s status carefully to avoid unlawful underpayment.
Allowable deductions from the minimum wage
Only certain deductions are permitted when calculating whether the minimum wage has been paid:
Statutory deductions such as tax and National Insurance
Repayment of wage advances or overpayments
Pension contributions and trade union fees
Accommodation charges up to the offset rate (£10.66/day)
Deductions for items connected to the job (e.g., uniforms, tools, travel between work sites, mandatory training) must not reduce pay below the minimum wage. Deductions for the employer’s own benefit (e.g., meals, non-essential purchases, or excessive accommodation charges) are not allowed if they would bring pay below the minimum wage. Tips, gratuities, and premium payments (such as overtime or bank holiday enhancements) do not count towards minimum wage calculations.
Pay and wage issues
Payslips: discrepancies, absence, and corrections
Employers must provide an itemised payslip to all employees and workers on or before payday, detailing gross pay, net pay, all deductions, pay period, and method of payment. If pay varies due to hours worked, the payslip must show the number of variable hours paid for each period. Failure to provide a correct payslip entitles the worker to raise a complaint, and unresolved issues can be escalated to an employment tribunal, which may order corrections and compensation for any loss suffered. Employers should correct errors as soon as possible and communicate changes in writing to affected staff, keeping records of all communications and corrections.
If a payslip is missing or contains inaccuracies, the employee should first raise the issue informally with their manager or payroll. If unresolved, a formal grievance can be submitted. Persistent non-compliance can lead to tribunal claims, with a strict time limit of three months minus one day from the date of the issue.
Wage deductions: allowed scenarios and limitations
Deductions from wages are only lawful if required by law (e.g., tax, National Insurance), permitted by the employment contract, agreed in writing in advance, or to recover an overpayment. Other lawful deductions include court orders, salary sacrifice arrangements, and repayment of advances or loans. Deductions must be clearly itemised on the payslip and must not reduce pay below the National Minimum Wage, except for statutory deductions or specific contractual liabilities. For 2025/26, the apprentice minimum wage is £7.55 per hour.
For retail workers, deductions for till shortages or stock shortfalls are capped at 10% of gross pay per period, except for the final pay. All deductions must be notified in writing before implementation. Unauthorised or excessive deductions can be challenged as unlawful, and employees may claim for up to two years of linked deductions if tribunal time limits are met.
Calculating overtime pay and entitlement
There is no statutory right to overtime pay; entitlement and rates depend on the employment contract or collective agreement. Overtime must not reduce average pay below the National Minimum Wage. Overtime pay, if provided, should be calculated and paid according to the agreed terms, and clear records of hours worked must be kept.
Overtime worked on a regular basis must be included in the calculation of holiday pay for at least four weeks of statutory leave (and for the full 5.6 weeks for irregular hours or part-year workers). Employers should ensure overtime arrangements and rates are clearly communicated and documented.
Guidance on pay and pensions for part-time workers
Part-time workers are entitled to the same hourly pay rate, pension rights, and benefits as comparable full-time workers, on a pro-rata basis. Employers must not treat part-time staff less favourably and must ensure pension contributions and holiday entitlements are calculated proportionally to hours worked.
Overtime for part-time workers is only payable at an enhanced rate if they work beyond the normal full-time hours or if the contract provides for it. Otherwise, additional hours up to the full-time equivalent are paid at the normal rate.
How commission payments impact minimum wage calculations
For minimum wage purposes, commission payments that are part of normal pay for work done in the same pay reference period are included in the calculation. However, premiums for overtime and shift work are excluded from minimum wage calculations. Employers must ensure that, after all deductions, total pay (including commission) meets or exceeds the National Minimum Wage for the relevant pay reference period. For 2025/26, the hourly rates are: £12.21 for age 21+, £10.00 for ages 18–20, and £7.55 for under 18s and apprentices.
Commission payments must also be included in holiday pay calculations for the first four weeks of statutory leave if they are regularly received and intrinsically linked to the worker’s duties.
Implications of irregular hours between pay periods on wages
For workers with irregular or variable hours, employers must record and pay for all hours worked in each pay period. Payslips must clearly show the number of variable hours paid, and different rates must be itemised if applicable. Accurate records are essential to ensure compliance with minimum wage laws and to resolve any disputes over pay.
For holiday pay, irregular hours workers accrue entitlement at 12.07% of hours worked, with pay calculated using a 52-week reference period or via rolled-up holiday pay if agreed and properly itemised on payslips.
Treatment of holiday pay in relation to overtime
Holiday pay must reflect normal remuneration, including regular overtime, commission, and bonuses for at least four weeks of statutory leave. For irregular hours and part-year workers, all 5.6 weeks’ holiday pay must include these elements, calculated using the average pay over the previous 52 paid weeks. Rolled-up holiday pay is permitted for irregular and part-year workers, provided it is calculated at 12.07% of pay and shown separately on the payslip.
Employers must ensure that holiday pay is paid at the same time as normal pay for the period in which leave is taken, and that all relevant elements (including overtime and commission) are included in the calculation to avoid underpayment and potential claims for unlawful deductions.
Employment benefits and pensions
Legal requirements for pension contributions
Employers must automatically enrol eligible employees into a qualifying workplace pension scheme and make minimum contributions. For the 2025/26 tax year, the minimum employer contribution is 3% of qualifying earnings (typically between £6,240 and £50,270 per annum), with the total minimum contribution (including employee contributions) at 8% of qualifying earnings. Contributions must be paid by the 22nd of the following month (if paying electronically) and backdated if missed. Failure to comply can result in fines and enforcement action by The Pensions Regulator. Employers must also provide written information to employees about their enrolment, contributions, and rights under the scheme within six weeks of eligibility or enrolment, and keep records for six years (four years for opt-out requests).
Guidance on employee benefits and pension schemes
Employee benefits typically include workplace pensions, group life assurance, income protection, private medical insurance, and other perks such as childcare vouchers, travel loans, or gym memberships. Pensions are a statutory benefit, while other benefits are discretionary and may be offered to attract and retain staff. Employers should ensure that benefit packages are clearly communicated, legally compliant, and do not inadvertently create contractual entitlements beyond what is intended. Regular review of benefit wording in contracts and handbooks is recommended to avoid granting unintended rights or restricting future changes.
Auto-enrolment duties and compliance
All UK employers must assess their workforce for eligibility and automatically enrol eligible jobholders (aged 22 to state pension age, earning at least £10,000 per year, and working in the UK) into a qualifying pension scheme. Employers must re-enrol eligible employees every three years and complete a re-declaration of compliance with The Pensions Regulator. Non-eligible jobholders (those under 22 or earning below £10,000 but above £6,240) can opt in and must receive employer contributions if they do. Entitled workers (earning below £6,240) can join a scheme but are not entitled to employer contributions. Employers must not induce employees to opt out and must handle all communications and processes in line with statutory requirements. Failure to comply can result in escalating penalties, including fines of up to £10,000 per day for serious breaches.
Managing pension scheme opt-outs and opt-ins
Employees can opt out of the pension scheme within one month of being enrolled (the ‘opt-out window’) and must receive a refund of contributions within one month of opting out. After this period, contributions remain in the scheme until retirement. Employers must process opt-out and opt-in requests promptly and keep records of all such requests. Employees can request to rejoin the scheme at least once every 12 months, and employers must re-enrol eligible employees every three years. All opt-out notices must be valid and received by the employer; processes should be in place to verify the authenticity of opt-out requests, especially if handled by scheme providers.
Benefits in kind and entitlement
Benefits in kind (BiKs) are non-cash benefits provided to employees, such as company cars, private medical insurance, or accommodation. These are generally taxable and must be reported to HMRC, except for certain exempt benefits (e.g., employer pension contributions to registered schemes). Entitlement to BiKs depends on the employment contract and employer policy. Employers should ensure BiKs are clearly documented, communicated, and administered in line with tax and employment law requirements. Accurate reporting and record-keeping are essential to avoid compliance risks and penalties.
Equal pay, discrimination, and employment rights
Right to equal pay and identifying equal work
The Equality Act 2010 guarantees that men and women in the same employment, performing ‘equal work’, must receive equal pay and contractual benefits unless any difference can be objectively justified. ‘Equal work’ is defined as: (a) ‘like work’ (same or broadly similar), (b) ‘work rated as equivalent’ (assessed as equivalent under a job evaluation scheme), or (c) ‘work of equal value’ (different roles but of equal value in terms of skill, effort, and responsibility). Comparisons may be made with employees of the opposite sex working for the same or an associated employer, and both current and former employees can be used as comparators. The right applies to employees, workers, agency staff, apprentices, and the self-employed if they are hired to do the work personally. A sex equality clause is implied into all contracts to ensure compliance, and the law covers all contractual terms, not just basic pay, including bonuses, overtime, pensions, and benefits in kind.
Situations allowing differences in pay for equal work
A difference in pay for equal work may be lawful if the employer can demonstrate a ‘material factor’ defence: the reason for the difference must be genuine, significant, and unrelated to sex (directly or indirectly). Examples include differences in qualifications, experience, performance, location (e.g., London weighting), market forces, or shift patterns. If the material factor is indirectly discriminatory (e.g., a policy that disadvantages women), the employer must objectively justify it as a proportionate means of achieving a legitimate aim. The explanation must be specific to the individual case and documented. If the employer cannot show a valid material factor, the pay difference is likely to be unlawful. Regular review of pay decisions is recommended to ensure ongoing justification.
Guidance on payslips and their required contents
Employers must provide itemised payslips to all employees, and to workers paid by reference to time worked, under section 8 of the Employment Rights Act 1996. Payslips must include: gross pay, net pay, amounts and purposes of any variable and fixed deductions, and the number of hours worked if pay varies according to hours worked. Payslips should be provided on or before payday, and may be given electronically or in hard copy. Failure to provide a compliant payslip can be challenged at an employment tribunal.
Rights against unfavourable treatment due to wage issues
Employees are protected from being subjected to detriment or victimisation for raising concerns about equal pay or pay discrimination. This includes protection against dismissal, disciplinary action, or any other unfavourable treatment for making enquiries, supporting a colleague’s complaint, or bringing a claim. Pay secrecy clauses cannot lawfully prevent employees from discussing pay for the purpose of identifying discrimination, and any attempt to victimise employees for such discussions is unlawful under the Equality Act 2010.
Guidance on gender pay gap reporting
Employers with 250 or more employees must publish annual gender pay gap reports, showing the difference in average earnings between men and women. Reports must include: mean and median gender pay gaps, mean and median bonus gaps, proportions of men and women receiving bonuses, and the distribution of men and women across pay quartiles. The data must be published on the employer’s website and the government portal, accompanied by a signed statement of accuracy, and retained for three years. Non-compliance may result in enforcement action and reputational risk. Gender pay gap reporting is distinct from equal pay law; it highlights average differences but does not in itself prove unlawful pay practices. Employers are encouraged to provide a narrative and action plan to address any identified gaps.
Managing payroll and compliance
Income Tax and National Insurance deductions
Employers must deduct PAYE income tax and National Insurance Contributions (NICs) from employee pay using the correct tax codes and 2025/26 thresholds.
Income Tax Bands (England, Wales, NI):
Personal allowance: £12,570 (tapered above £100,000)
20% basic rate: £12,571–£50,270
40% higher rate: £50,271–£125,140
45% additional rate: over £125,140
National Insurance Thresholds (Class 1):
Employee (primary):
0% up to £242/week
8% from £242.01–£967/week
2% above £967/week
Employer (secondary):
15% on earnings above £175/week
Payroll software must be updated for the 2025/26 rates. All deductions must be itemised on payslips, and employers must submit Real Time Information (RTI) reports to HMRC on or before payday. The statutory minimum wage from April 2025 is: £12.21 (21+), £10.00 (18–20), £7.55 (under 18/apprentices).
Where post-employment payments are made using the 0T tax code, income tax is applied as if no personal allowance is available. Monthly equivalent tax bands apply:
£0–£3,141 at 20%
£3,141.01–£10,428 at 40%
Over £10,428 at 45%
Handling pay disputes and backdated pay claims
Employees can challenge underpayments or incorrect deductions by raising the issue with their employer. If unresolved, claims can be made to an employment tribunal for unlawful deduction from wages (or breach of contract if no longer employed). The time limit is three months minus one day from the last deduction, and linked deductions can be backdated up to two years. Employers must investigate promptly, correct any errors, and maintain full records.
Overpayment recovery: agreement procedures
Employers can recover overpaid wages or statutory pay, including without consent, where the overpayment was due to a genuine mistake. Best practice is to notify the employee and agree a repayment plan. Deductions must be itemised on payslips and must not reduce pay below the National Minimum Wage unless allowed by statute. Where the employee has left, recovery must be pursued in writing, with civil action as a last resort. PAYE and NIC records should be adjusted to reflect the recovery.
Attachment of earnings orders
Courts may issue an attachment of earnings order (AEO) requiring deductions from an employee’s wages to repay debts. The employer must apply the specified deductions from net pay and pay the amounts to the relevant authority. The deduction must appear on payslips, and the Protected Earnings Rate (minimum take-home amount) must be respected. Failure to comply can result in employer penalties. If the employee leaves, the court must be informed promptly.
Payroll during termination: holiday entitlements and notice periods
On termination, employees are entitled to payment for accrued but unused statutory and contractual holiday, taxed through payroll. Where notice is not worked, payment in lieu of notice (PILON) may be due. PILON and Post-Employment Notice Pay (PENP) are fully taxable and subject to NICs. Only genuine compensation for loss of employment may qualify for the £30,000 tax exemption. Final payments must be reported to HMRC, a P45 issued, and if further payments are made after the P45, the 0T tax code must be used. NICs on irregular earnings (e.g., holiday pay) are calculated using a weekly earnings period.
Record-keeping and reporting
Employers must retain payroll records, including payslips, deduction details, and communications related to disputes or overpayments, for at least three years. All payments must be reported via RTI, and leavers’ details included in the Full Payment Submission (FPS). For payments made after leaving, provide a written breakdown of pay and deductions. Failure to comply can result in HMRC penalties.
