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Understanding National Minimum Wage
Understanding National Minimum Wage
Rebecca Russell avatar
Written by Rebecca Russell
Updated over a week ago

What is National Minimum Wage?

National Minimum Wage (NMW) is the minimum hourly rate of pay that a worker is entitled to, with a higher rate called the National Living Wage (NLW) applicable to workers over 21 (not apprentices).

Tip: This is not to be confused with the Real Living Wage, which is a voluntary scheme aimed at paying a worker based on the cost of living.

If you're paying below the National Minimum Wage, PayFit will notify you under the Required actions section (bell icon). You won't be able to run your payroll until you've either increased the employee's pay or indicated that there's a valid reason for paying the employee below the National Minimum Wage.

PayFit calculates the employee's hourly rate based on their pay information in the current month. The 'calculated hourly rate' may be different from the hourly rate you've entered, but this matches the legislation. It's important that the 'calculated hourly rate' is at least the National Minimum Wage rate.

Who's entitled to National Minimum Wage?

Most workers in the UK, including full-time, part-time, zero-hours, casual, and interns, are entitled to the National Minimum Wage. There are very few exceptions to this rule.

When are the National Minimum Wage rates applicable?

National Minimum Wage rates are applicable for your first pay reference period on or after 1 April. Your pay reference period is the period you're paying your employees for.


You pay your employees on the 25th of April for hours worked between 1st and 30th April. The new rates apply to your April payroll.

You pay your employees on the 10th of each month for hours worked between 10th of March and 9th of April. The new rates apply in your May payroll for the pay reference period 10th April to 9th May.

Calculating the hourly rate

There are some items of pay that can’t be included in a calculation of the National Minimum Wage. It's important that employers and employees know what these are.

Elements to include in the calculation:

  • Overtime at the employee's usual rate.

  • Salary Sacrifice deductions

  • Bonuses

Tip: If the employee's salary sacrifice arrangement reduces their hourly rate below the National Minimum Wage, you can suggest to the employee that the deductions can be taken from their net pay.

Elements to exclude from the calculation:

  • Benefits in kind, such as meal vouchers, private medical insurance, etc

  • Overtime, paid at a premium rate.


An employee earns a £2250 monthly salary; they're contracted to work 40 hours at a rate of £12.90. They contribute £112.50 to a salary sacrifice pension scheme, work 5 extra hours at their usual rate, and work 8 bank holiday hours at double pay (excluded). Their employer pays for private medical insurance (excluded).

Pay: £2250 salary - £112.50 pension + 5 extra hours paid at £12.90 = £2202.00

Hours worked: They're contracted to work 40 hours per week, which equates to

2080 per year, or 173.33 hours per month. We also include the 5 extra hours, but exclude the bank holiday hours.

Total Hours: 173.33 average + 5 extra hours = 178.33 hours

Hourly Rate: £2202.00 / 178.33 hours = £12.34

What happens if you don't pay National Minimum Wage?

If you're found to be paying below the National Minimum Wage, you'll be asked to pay the arrears and significant penalties. You'll also be included on the 'Name and Shame' list through HMRC's National Minimum Wage Naming scheme. Your employees could also take you to an employment tribunal.

How PayFit helps

In your April payroll, if any employees are being paid below the National Minimum Wage, a required action will appear (notification bell icon). Follow the instructions in the relevant section below, based on when your pay reference period starts.

Your pay reference period starts on 1 April

You'll need to apply those higher rates to your April payroll. To view the employees whose calculated rate is below the National Minimum Wage:

  1. From the required action, click Verify information.

  2. The page is broken down by employee salary rate options.

  3. To adjust an individual employee's pay, simply click the calculated hourly rate. Or to adjust employee rates in bulk, click Edit all above the relevant section.

Once you've updated the hourly rates and the calculated hourly rates are above the National Minimum Wage, refresh your browser, and the required action disappears.

Your pay reference period starts after 1 April

In this case, you don't need to apply those higher rates until your May payroll. To remove the required action from your April payroll, you'll need to confirm that the rates don't apply this month. To do this:

  1. From the required action, click Verify information.

  2. At the bottom of the page, check the box confirming you'd like to keep the existing rates.

  3. Click Save.

  4. To show the required action again in May, after you've run your April payroll, please get in touch, and we can re-activate the required action for you in your May payroll.

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