UK employers urged to future-proof pay before fire and rehire reform hits

The Department for Business and Trade has named and shamed 518 employers for breaches of National Minimum Wage rules — affecting nearly 60,000 workers and triggering over £7.4 million in back pay. One of the most striking points is how many of these breaches were not deliberate, rather  inadvertent, technical, or systemic errors, including missed travel time, incorrect deductions, and mistakes with salary sacrifice. 

With the April 2025 increase to the minimum wage, and its expansion to cover all workers aged 21 and over, more employees now sit closer to the threshold, and that’s making payroll compliance more complex. Even small adjustments, like deductions or shift premiums not counting, can create unintentional underpayments. And the enforcement regime is only getting tougher. So what can employers do now to protect themselves? We’ll ask a lawyer who is advising clients on that point. 

Consolidating pay is emerging as a key compliance strategy. Why? Because not all elements of pay count towards the minimum wage. For example, shift premiums, bonuses, or paid travel time may not be included in the NMW calculation. That means some employees, even those who appear to earn well above the minimum, may fall below the legal threshold once the calculation is applied.

By consolidating premiums, benefits or allowances into basic pay, employers can simplify their pay structures and reduce the risk of falling foul of the rules. It doesn’t necessarily mean a higher cost, just a different configuration. But any change to terms and conditions needs careful handling. That’s because it’s already harder to change contractual terms without employee consent, and the Employment Rights Bill, which is now at an advanced stage in the House of Lords, includes proposed changes that would make it automatically unfair to dismiss and re-engage in certain cases, particularly where the changes affect pay, pensions, hours or holidays.

So let’s hear more about this. Gillian Harrington has been helping a number of clients with this issue and earlier she joined me by phone from Aberdeen to discuss it. First question, what is consolidation of pay?: 

Gillian Harrington: “Consolidation involves rolling variable pay elements into the basic hourly rate without reducing the total pay. So, essentially what that means is that all additional allowances, or bonuses, or overtimes, etcetera are included within the basic rate which then would be regarded as national minimum wage, and that would therefore increase the margin above the minimum to ensure compliance for the organisation. I suppose, in some respects, that would lead to simple pay slips, more consistent compliance, and clearer auditing, and would also free up the room for lawful salary sacrifice arrangements. I suppose, on the flip side to that, however, that does mean that employees are constantly entitled to that sum and there wouldn't be that variable element that there may be requirements in some organisations.”

Joe Glavina: “What about the mechanism for changing pay, Gillian. How can employer effect change lawfully?” 

Gillian Harrington: “Well, I suppose the key thing here is that by changing pay, that is a contractual variation so that has to be done through consultation with employees or, if the workforce is unionised, through the unions. Also, as well, the employees need to agree to that change as well. Previously, and currently as well, the law is that employers can use dismissal and re engagement as a sort of worst-case scenario if employees don't agree to a proposed change to their terms and conditions of employment. That is always, as I would always say, a worst case scenario and it is always contentious because it does run the risk of potential and fair dismissal claims, but that is at the current, present, moment an option for employers but there is clear case law that employee consultation and transparency will mitigate the risk of any dismissals provided that employees are brought on board, that unions are brought on board, and a full consultation has taken place.”

Joe Glavina: “As you say, consolidation is a contractual variation best done through consultation and voluntary agreement but employers often use dismissal and re-engagement – or as it is often called ‘fire and rehire’ – as a fallback. That’s a practice the government wants to clampdown on and it is expressly covered in the Employment Rights Bill which is well on its way through parliament. So employers have a limited window to do this.” 

Gillian Harrington: “Yes and I think if this is something that clients are considering, I think they do need to take stock and actually think, okay, well, we need to get this done now, the reason being that the Employment Rights Bill has got a proposal to make dismissal and rehire - much more legally complex. There would only be very, very limited circumstances in which that will be permitted and once this code is enforced - the ACAS code will accompany the Employment Rights Bill - and once that's enforced, failure to follow it may result in uplifted awards and higher reputational risk. So it is something that employers should be concentrating on now to think, okay, do we need to do this? Do we need to consolidate our pay? Do we need to make changes to terms and conditions of employment because if they want to do that, and dismissal and rehiring is potentially something they might have in mind, you've got a limited window to do that.”

Joe Glavina: “If there is one key piece of advice, a key message for employers, what would it be?”

Gillian Harrington: “I would say, conducting a strategic pay audit. I think it's really important for employers to look at salaries, to look at variable elements and potential national minimum wage exposure, particularly as the national minimum wage limits increase every year and there does need to be a consideration of that in terms of employers need to know when they're hitting those limits and future proof that so that any national minimum wage increases are flagged and making sure that employees are being paid that minimum amount.”

A fortnight ago Gillian talked to this programme about the steps you can take to minimise the risk of inadvertent breaches, particularly the risk around 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 programme is called ‘HMRC names 518 employers for minimum wage breaches’ and it’s available for viewing now from the Out-Law website. 

- Link to HRNews programme: ‘HMRC names 518 employers for minimum wage breaches’