Common nmw errors to avoid | Severn Accounting

As an employer in the UK, understanding National Minimum Wage (NMW) obligations is crucial. Get it wrong, and you could face substantial penalties from HMRC, damage to your business reputation, and potential enforcement action. Yet every year, we see businesses—from small startups to established firms—make preventable mistakes with their minimum wage compliance. In this post, we’ll walk through the most common errors we encounter and show you how to avoid them.

Confusing the Different Minimum Wage Rates

The biggest mistake employers make is treating all workers the same when it comes to pay. The NMW isn’t a single figure; it varies significantly depending on your worker’s age and circumstances.

For the 2024/25 tax year, the rates are:

National Living Wage (21+): £11.44 per hour
21–22 rate: £8.60 per hour
Under 21: £6.40 per hour
Apprentice rate: £6.40 per hour (applies to apprentices under 19, or those in their first year)

A common slip-up is paying everyone the National Living Wage rate, then assuming you’re compliant. But if you’re employing 18-year-olds or apprentices, you may be overpaying (which isn’t a problem) or, worse, accidentally underpaying them if you’ve misclassified their rate.

Another frequent mistake is miscalculating what counts as hours worked. Only paid time counts towards your NMW obligations. Unpaid breaks don’t count, but on-call time (where an employee must be available to work) generally does, depending on the circumstances.

Ignoring the Apprentice Rate Trap

The apprentice rate is often misunderstood. It applies to:

All apprentices under 19, and
Apprentices aged 19+ in their first year

Once an apprentice reaches 19 and completes their first year, they must be paid at least the age-appropriate minimum wage, not the apprentice rate.

We’ve seen employers continue paying the apprentice rate indefinitely, thinking it applies to all trainees. Keep clear records of when each apprentice started their apprenticeship—HMRC will check this during an investigation. If you can’t evidence the start date, you’ll likely have to backpay at the higher rate.

Failing to Account for Accommodation Offsets

If you provide accommodation to your employees (which is less common nowadays, but still relevant in hospitality, agriculture, and care work), you might be using an accommodation offset. This allows you to deduct up to £8.60 per day (in 2024/25) from wages for providing suitable accommodation.

Common mistakes include:

Deducting an offset without providing genuinely suitable accommodation
Deducting more than the statutory maximum
Not documenting the arrangement clearly
Not checking whether the worker has actually agreed to the offset

HMRC scrutinises these arrangements carefully. If challenged, you’ll need to prove both that the accommodation existed and that it met standards. It’s safer to assume you can’t use an offset unless you have clear, documented evidence.

Keeping Poor Records

HMRC’s enforcement teams have become increasingly active on NMW compliance. If you’re investigated and can’t produce detailed payroll records showing hours worked and wages paid for each employee, HMRC will likely assume the worst and calculate penalties accordingly.

Your records should include:

Dates and hours worked for each worker
Gross wages paid
Any deductions made
The NMW rate that applied to that worker at that time
Any accommodation offset calculations

Keep these for at least three years. Digital payroll software makes this far easier than manual systems—many providers now flag NMW compliance automatically.

Not Updating Rates Annually

The NMW rates change each April. A shocking number of employers forget to update their payroll systems, meaning staff employed from April onwards are accidentally underpaid until someone notices (or HMRC does).

Set a calendar reminder in late March each year to review HMRC’s announcement and update your records accordingly. If you use payroll software, check that it’s been updated before your first April payrun.

Conclusion

National Minimum Wage compliance isn’t complicated, but it requires attention to detail and accurate record-keeping. The cost of getting it wrong—in back pay, penalties, and reputational damage—far outweighs the small amount of time spent getting it right from the start.

If you’re unsure about your current arrangements or want a payroll audit to check compliance, we’d recommend seeking professional advice early. For tailored advice, contact Severn Accounting — we’re here to help.