National Living Wage and Minimum Wage in 2025: An Employer’s Guide

For UK employers, compliance with HMRC regulations on wages represents more than simply ticking a mandatory and legal box.

As an employing business, if HMRC discovers that you have paid your employees less than minimum wage, you could be issued with a notice to pay the correct wage to the employee, coupled with a costly penalty.

What’s more, the consequences of failing to uphold proper payroll etiquette can spell disaster for your company reputation. Word travels fast, after all. However, if you’re intent on maintaining a positive workplace culture while fulfilling your legal obligations, it’s prudent that you stay clued into the current rates and intricacies of the National Living Wage (NLW) and National Minimum Wage (NMW) for 2025/26.

At Hamlyns, we understand that navigating these changes can be challenging, hence why we’ve created this guide to help your business stay compliant while managing the financial side.

What Are the National Minimum and Living Wage Rates for 2025/26?

The UK National Minimum Wage is a minimum hourly rate almost all workers under the age of 21 (formerly 23) are entitled to by law. It varies by worker age and exists to ensure a minimum standard of living for UK workers.

Comparatively, the UK National Living Wage applies to workers aged 21 and over; it is the mandatory minimum amount that must be paid to everybody else.

The new rates, announced in Chancellor Rachel Reeves’ Autumn Budget in 2024, represent increases across all age brackets, with notable rises for younger workers.

*The apprentice rate applies to apprentices under 19 or those 19 and over who are in the first year of their apprenticeship. After completing their first year, apprentices must receive the appropriate rate for their age.

The key takeaway here is that more UK workers are now entitled to the higher rate of pay, reflecting the UK government’s commitment to support their financial wellbeing. Both the NMW and NLW are statutory requirements under UK law, and are not to be confused with the voluntary “Real Living Wage”, which is calculated by the Living Wage Foundation based on actual living costs.

What Do Employers Need to Know Regarding NLW and NMW?

Employers must stay abreast of these wage threshold changes to ensure not just HMRC compliance, but fair treatment of their staff. Employers must ensure that they are fulfilling the correct obligations listed in the table above and be mindful of common issues.

Working Time Calculations

One of the most common areas where employers inadvertently breach minimum wage regulations is in the calculation of working time.

What is Considered Working Time?

Working time is defined as the time when employees are either working or are available to work. This can include regular working hours, mandatory or job-specific training, time spent ‘on call’, time spent travelling for business purposes (outside of normal commuting) or time when employees are required to be available but cannot perform their duties (such as when equipment or machinery fails).

What is Not Considered Working Time?

Working time does not include lunch or rest breaks, sickness leave, holiday, parental leave, commuting time between home and the usual workplace and non-work-related training.

Sleeping

There are special considerations, including sleeping time. For workers required to sleep at their workplace (common in the care sector), the Supreme Court ruled in 2021 that NMW is only payable for time when workers are “awake for the purpose of working.” However, if suitable sleeping facilities are not provided, NMW must be paid for the entire shift.

Travel

While regular commuting doesn’t count toward working time, travel that’s part of the job does. This includes travel between assignments, to client sites, or attending off-site training.

Deductions and Offsets

When calculating deductions from workers’ pay, employers must ensure these don’t reduce earnings below the minimum wage.

Common permitted deductions include:

• Income tax and National Insurance contributions (NICs)
• Recovery of wage advances or overpayments
• Pension contributions

The accommodation offset allows employers providing accommodation to count a limited amount toward minimum wage payments. For 2025/26, this offset is capped at £69.93 per week (£9.99 per day). Any charge above this amount is treated as a deduction that could potentially bring pay below the minimum wage.

Common NLW and NMW Compliance Errors

• Failing to update pay rates for birthdays: Employers must increase pay rates when employees move into higher age brackets, which means that adjustments are made from the beginning of the pay period in which the birthday falls.
• Uniform requirements: If employees must buy specific items for work (like uniforms) the cost effectively reduces their wages. This must not fall below the minimum wage.
• Trial shifts: Workers must be paid the minimum wage for all trial shifts if they’re performing tasks that contribute to the business.
• Misclassifications: Classifying workers as self-employed contractors to avoid NMW obligations is risky and can result in fines if HMRC deems them to be full-time employees or workers.
• Poor record-keeping: Employers must keep accurate records of hours worked and payments made for at least 3 years. Inaccurate records make it harder to demonstrate adherence to HMRC regulations during inspections.

What Happens if Employers Breach NMW Laws?

The penalties for failing to pay the correct minimum wage are severe:

• Financial penalties of up to £20,000 per worker (with a minimum of £100 per worker)
• Requirement to pay arrears to affected workers
• Potential public naming and shaming by the government
• Possible employment tribunal claims

Manage Wage Rate Changes With Confidence

At Hamlyns, we understand that wage increases can impose cash flow challenges on businesses of all sizes. If you employ staff, it’s always wise to ensure you’re fully above board and ensure you don’t accidentally or intentionally overlook your minimum and living wage obligations.

Our team of expert accountants and business advisors can provide in-depth audits to ensure HMRC compliance, financial planning assistance to manage increased wage costs, strategic advice on pricing and profitability, and support with HMRC inquiries or investigations.

We can also recommend efficient record-keeping systems to ensure you aren’t putting yourself or your business at risk of non-compliance, where updates are autonomous and rates update automatically. For more information, or to schedule a no-obligation consultation about how we can support your business and its growth journey, please contact our team today.