The minimum wage traps that catch small employers out

Nearly every minimum wage underpayment HMRC finds in a small business is accidental. The hourly rate on the contract is right. The payroll software is right. What is wrong is the number of hours that rate is being divided into, or a deduction that quietly pulls the effective rate under the floor, or an employee who had a birthday in March and moved into a higher band without anyone noticing.

That matters because the enforcement regime does not care whether it was deliberate. HMRC can require arrears to be paid at current rates rather than the rates in force at the time, issue a penalty of 200% of the arrears — up to £20,000 per worker — and publish the employer's name. For a café or a small site with a handful of hourly staff, a twenty-minute-a-shift habit can turn into a five-figure bill.

The rates from 1 April 2026

The National Living Wage, which applies to workers aged 21 and over, rose by 4.1% to £12.71 an hour. The rate for 18 to 20-year-olds is £10.85, and the rate for 16 and 17-year-olds is £8.00. The apprentice rate also rose to £8.00, from £7.55.

One number that comes up constantly in hospitality and agriculture: the accommodation offset, which is £11.10 a day from April 2026. It is the only benefit in kind that can count towards minimum wage pay. Meals, travel, uniforms and staff discounts cannot, however generous they are.

Trap one: the hours nobody counts

This is the big one, and it is almost always found in the same places. Cashing up after the doors are locked. Setting up before the shift officially starts. Waiting for a security check on the way out. Mandatory training on a day off. Travelling between assignments during a working day — not the commute from home, but the time between the first and second job of the day. Staff handovers. All of it is working time, and all of it has to be paid.

Here is what it costs. Illustrative figures: a 22-year-old on the National Living Wage of £12.71 with a 40-hour contract, who spends twenty minutes cashing up after clocking off, five nights a week. That is 100 minutes a week, or about 1.67 hours. The week's pay is 40 × £12.71 = £508.40, but the hours actually worked are 41.67. The effective rate is £12.20 — 51p an hour below the legal floor.

Over a year, the arrears on that one worker come to roughly £1,105. Add a 200% penalty and the same habit across four staff, and an unremarkable end-of-shift routine has produced a bill north of £13,000.

HMRC does not look at the rate on the contract. It divides what you actually paid by the hours the worker actually worked, and the answer either clears the floor or it does not.

Trap two: deductions and things staff have to buy

The test is not what the payslip says the hourly rate is. It is what the worker was left with. Deductions or payments that are for the employer's own use or benefit reduce pay for minimum wage purposes — the cost of a uniform, tools or equipment the job requires, a till shortage made good, a charge for a required DBS check.

The arithmetic is unforgiving because it lands in a single pay reference period. A £45 uniform deducted from one monthly payslip, for someone working 173 hours that month, cuts the effective hourly rate by 26p. If they were on exactly £12.71, they were underpaid that month, even though every other month was fine.

Some deductions do not count against you: tax and National Insurance, pension contributions, union subscriptions, a genuine advance of wages being recovered, and voluntary purchases made for the worker's own use and benefit — a discounted meal they chose to buy, for instance. The distinction is whose benefit it serves, not whether the worker agreed to it.

And tips never count. Tips, gratuities and service charges cannot be used to reach the minimum wage, and under the tipping rules employers must pass qualifying tips on to staff in full and allocate them fairly.

Trap three: birthdays and apprentices

Age bands change the rate an employee is entitled to, and the new rate applies from the start of the next pay reference period after their birthday. An 18th, 21st or the end of an apprentice's first year should all be diary entries in payroll, not things somebody remembers.

The apprentice rate is the most misapplied rate of all. It only applies to apprentices aged under 19, or to those aged 19 and over who are in the first year of their apprenticeship. An apprentice aged 20 who is thirteen months into their programme is entitled to the 18 to 20 rate of £10.85. A 22-year-old past their first year is entitled to the full £12.71. The rate does not run for the length of the course. There is more on what an apprentice really costs across the whole scheme in taking on an apprentice.

Trap four: salaried staff and unpaid trial shifts

Salaried-hours workers have their own set of rules, built around a calculation year and a set number of basic annual hours. The risk is a salaried employee whose actual hours have crept well past their contracted hours — a supervisor on £26,000 for a nominal 40-hour week who is genuinely doing 52 hours is on £9.62 an hour, and the salary being comfortably above the annual equivalent of the minimum wage is no defence.

Working out the annual equivalent takes one line: hourly rate × contracted weekly hours × 52. At £12.71 for 40 hours, that is £26,436, and a nominally generous salary can sit under it once real hours are counted.

Unpaid trial shifts are the other live issue. A short, observed, unpaid trial as part of a genuine recruitment process can be lawful. A trial shift where the person works a normal service, unsupervised, doing productive work, is employment, and it has to be paid.

What to do this week

Take one recent payslip for each hourly worker. Divide the gross pay for that period by every hour actually worked in it, including opening up, closing down, handovers, training and travel between sites. Then subtract anything they had to buy or had deducted for your benefit in that period. If the answer is above the rate for their age, you are fine. If it is within pennies of it, you have no margin for the week somebody stays late.

Then fix the two structural causes. Record actual start and finish times rather than rostered ones, because a clock-in system is also your evidence — you are required to keep minimum wage records, and they must be kept for six years. And put the age-band and apprenticeship-anniversary dates in the payroll calendar so a birthday never triggers an underpayment.

Finally, budget for the floor rising every April. It is the one labour cost that changes on a schedule you can see coming, which makes it the easiest to plan for and the one small employers most often absorb out of margin instead of pricing in. The same is true of the other statutory entitlements that come attached to an hourly workforce — how much holiday your staff are actually entitled to is the companion calculation, and it catches out just as many people.

Common questions

What are the UK minimum wage rates from April 2026?

From 1 April 2026 the National Living Wage for workers aged 21 and over is £12.71 an hour, a 4.1% increase. The rate for 18 to 20-year-olds is £10.85, and the rate for 16 and 17-year-olds is £8.00. The apprentice rate rose from £7.55 to £8.00 and applies only to apprentices aged under 19, or aged 19 and over in the first year of their apprenticeship. The accommodation offset is £11.10 a day and is the only benefit in kind that can count towards minimum wage pay — meals, uniforms, travel and staff discounts cannot.

Does time spent cashing up or opening up count towards the minimum wage?

Yes. Time spent setting up before a shift, cashing up afterwards, waiting for a security check, attending mandatory training, handing over between shifts, and travelling between assignments during the working day all count as working time and must be paid. The ordinary commute from home to a single workplace does not. HMRC calculates compliance by dividing what you actually paid by the hours actually worked, so twenty minutes of unpaid closing-up five nights a week is enough to put an employee on the exact National Living Wage below the legal floor and create arrears.

Can I deduct the cost of a uniform or tools from wages?

You can make the deduction, but pay must still clear the minimum wage after it. Deductions or required purchases for the employer's benefit — uniforms, tools, equipment the job needs, made-good till shortages — reduce pay for minimum wage purposes in the pay period they fall in. A £45 uniform deduction from one monthly payslip covering 173 hours cuts the effective rate by 26p an hour, which is enough to breach the floor for someone paid exactly the National Living Wage. Deductions for tax, National Insurance, pensions, union subscriptions and genuinely voluntary purchases for the worker's own benefit do not count against you.

What happens if HMRC finds I have underpaid the minimum wage?

HMRC can require you to pay the arrears at current rates rather than the rates in force when the underpayment happened, which increases the bill where the breach ran over several years. On top of the arrears it can issue a penalty of 200% of the amount owed, subject to a maximum of £20,000 per worker and a minimum of £100, and the employer can be named publicly. Employers are also required to keep minimum wage records for six years, and an absence of records makes it considerably harder to rebut a worker's account of the hours they actually worked.