HMRC names 518 employers for minimum wage breaches

The Department for Business and Trade has named 518 employers for failing to pay the National Minimum Wage, involving more than £7.4 million owed to nearly 60,000 workers, along with penalties up to 200% of the shortfalls.

According to the DBT’s Educational Bulletin, about 34% of these breaches were due to pay deductions, including salary sacrifice, and 31% were caused by unpaid working time, such as missed overtime or travel hours . These are not necessarily deliberate underpayments, but rather technical breaches in payroll and entitlement calculation. We’ll speak to an employment lawyer advising clients how to avoid that trap.

One key risk area is salary sacrifice. If deductions for things like pensions or cycle-to-work schemes reduce net pay below the NMW rate, it counts as a breach, even if consented to by the employee. That’s because HMRC calculates based on cash received, not gross salary.

The risk has intensified since the April 2025 NMW increase, which extended the full rate to all workers aged 21 and over, placing more employees closer to the minimum threshold. This issue spans beyond traditionally low-paid sectors, showing up in retail, hospitality, logistics, health, and professional services. With the NMW increase and expanded coverage, more workers are now at risk, and HMRC’s enforcement is expected to continue, carrying heavy financial and reputational costs for businesses.

So let’s get a view on this. Gillian Harrington has been flagging this risk with her clients and earlier she joined me by phone from Aberdeen to discuss it: 

Gillian Harrington: “Well, I think to be honest with you, these are not malicious breaches but these are  systemic or technical issues and I think, to be honest with you, employers probably don't even know that they're doing this. There are various issues that potentially could be causing this. One of the main things that we've seen clients often mistakenly do is when they implement salary sacrifice schemes and this is a common culprit because national minimum wage must be assessed on pay after sacrifice is deducted. What this means is that in some circumstances an employee's wages may actually be less than the national minimum wage after the salary sacrifice amounts are deducted so it might just be an inadvertent breach here. Many payroll systems do lack automated checks so that can lead to an inadvertent underpayment.”

Joe Glavina: “So even where the headline pay is at or above the national minimum wage, salary sacrifice can still push pay below the legal threshold, Gillian?”

Gillian Harrington: “Yes exactly. Certainly an employee might be getting the national minimum wage or slightly above that, but if the salary sacrifice, for example, for pension contributions or in respect of any other points, that can result in potentially their salary being less than the national minimum wage and because the post sacrifice claim must remain above the legal minimum that does then lead to these potential breaches. A really important point to note is that even if workers do agree to reduce their salary that doesn't matter for the purposes of national minimum wage compliance so if for example in a savings scheme an employee is happy for their wages to be taken or deducted that still won't comply with the national minimum wage rules.”

Joe Glavina: “So how should employers go about reviewing their arrangements and putting safeguards in place to avoid breaching the rules?”

Gillian Harrington: “Well, I think the starting point does need to be an urgent audit of all salary sacrifice arrangements. So employers need to look at their current arrangements and look at those employees who might potentially be at risk, particularly those who are on lower paid wages. It might be that they may need to look at their payroll and to look at their payroll practices to see if there's any way that they can block sacrifices which make wages below the national minimum wage and also, as well, make sure that there's eligibility thresholds for salary sacrifice schemes as well. I think it's really important to have a coordinated approach across the whole of the company - payroll, legal, HR and benefits teams - to make sure that there is this collaboration to make sure that the company is not falling foul of the national minimum wage requirements.”

Joe Glavina: “The consequences of getting this wrong are pretty serious aren’t they, Gillian? We’re talking about very big fines, potentially”

Gillian Harrington: “Absolutely, and, certainly, if a company has not been paying the national minimum wage to their workers the government may conduct an audit and they may issue a notice of under payment to the company in respect of paying those sums back to the employees and also, as well, in addition to that, may face penalties of up to 200% of the amount. So it's not insignificant, but I think sometimes one of the hardest hitting issues is that it will potentially be made public that they haven't paid the national minimum wage to their employees because the government do name and shame in respect of those employers who fail to pay national minimum wage and I think that then, potentially, leads to reputational risk to the company as well as financial costs and lower staff morale as well.”

If you would like to read up on this issue and the steps you can take to minimise the risk of inadvertent breaches you can. The Employment Team has produced an article on it which is available now from the Out-Law website. We’ve included a link to it in the transcript of this programme. 

- Link to Out-Law article: ‘Employers must ensure minimum wage obligations are met after over 500 firms named for breaches’