April 2025 National Minimum Wage Increase

As April approaches, businesses must prepare for the annual increase in the National Minimum Wage (NMW) and National Living Wage (NLW). This change is a legal requirement, and failing to comply can result in severe penalties, reputational damage, and financial loss. Ensuring that all employees are paid correctly is not just a matter of compliance but also one of maintaining employee trust and engagement.

New Minimum Wage Rates from April 2025

As part of the Government’s latest policy changes, the new National Minimum Wage and National Living Wage rates will come into effect from April 2025. These updated rates are designed to reflect economic conditions and support employees with the cost of living. 

The Government has confirmed the new rates that will come into effect from April 2025. These are as follows:

• National Living Wage (21 and over): £12.21 per hour
• 18–20-year-olds: £10.00 per hour
• 16–17-year-olds: £7.55 per hour
• Apprentices: £7.55 per hour (applies to apprentices under 19 or those over 19 in the first year of their apprenticeship)
• Accommodation offset: £10.66

Businesses must ensure that payroll systems are updated and that all employees receive at least the new minimum rates from the first pay period after April 1st, 2025.

Common Pitfalls: What Constitutes Working Time?

One of the biggest mistakes employers make when calculating the NMW is misunderstanding what counts as ‘working time.’ If an employer inadvertently excludes certain hours from their calculations, they may unknowingly pay an employee less than the legal minimum. To avoid this, businesses must be aware of the following:

1. Training and Inductions

Employees must be paid for any time spent attending mandatory training or induction sessions, even if these take place outside of normal working hours.

2. Travel Time

For employees who travel as part of their job (e.g., care workers, sales representatives), the time spent traveling between different work locations should be counted as working time. However, commuting from home to work and vice versa does not count.

3. Waiting Time

If an employee is required to be at work but is waiting for tasks or customers (e.g., a security guard waiting for an alarm call or a retail worker waiting for a delivery), this time must be included in their working hours.

4. On-Call Time

If an employee is required to stay on-site or nearby while on call, this may count as working time. Whether the employee is actively working or just waiting to be called upon, this time could contribute to their minimum wage calculation.

5. Uniform and Equipment Deduction Errors

If an employer requires staff to purchase a uniform or essential work equipment, these costs should not bring their hourly rate below the minimum wage. Employers must ensure that deductions do not result in underpayment.

6. Working beyond Contracted Hours

If employees regularly work beyond their contracted hours but are only paid for their scheduled shifts, they may not be receiving the correct NMW. For example, a hospitality worker who stays late to clean up after closing must be paid for that additional time.

Holiday Pay: An Important Consideration

Another critical aspect of wage compliance is ensuring that employees receive the correct holiday pay. Holiday pay must be calculated based on an employee’s normal earnings, including any regular overtime, commissions, or bonuses. Underpaying holiday entitlement is a common issue, and businesses must ensure they follow the correct methodology.

Key Points on Holiday Pay Compliance:

• All workers, including zero-hour contract employees, are entitled to holiday pay.
• Holiday pay should reflect the worker’s normal rate of pay, not just their basic wage.
• Employers must consider additional earnings like overtime, bonuses, and commission when calculating holiday pay.
• Employees accrue holiday pay based on their working hours, including time spent on-call, at training, or traveling between work locations.

Employers should regularly review their holiday pay calculations to avoid non-compliance and potential legal challenges.

Ensuring Compliance and Avoiding Penalties

Failure to meet NMW obligations can result in fines of up to 200% of the underpayment, public naming and shaming by HMRC, and even legal action. To stay compliant, employers should:

• Regularly audit payroll and working time records
• Train managers and HR teams on NMW rules
• Ensure all working hours are recorded accurately
• Review any salary sacrifice schemes to confirm compliance

By taking proactive steps now, businesses can ensure they meet their legal obligations and avoid costly penalties. More importantly, paying employees correctly creates a positive workplace culture and enhances staff retention.

For further guidance on NMW compliance or support with payroll processes, get in touch with HR:4UK today.