Minimum wage changes in 2025 – What counts, what doesn’t, and why it matters for your business

The National Minimum Wage (NMW) is going up in April 2025. That means higher pay for workers, but also bigger responsibilities for employers. 

From 1 April 2025, the new hourly rates will be: 

• 21 and over – £12.21 (up from £11.44) 

• 18 to 20 – £10.00 (up from £8.60) 

• Under 18 and apprentices – £7.55 (up from £6.40) 

Payroll errors, especially those that lead to underpaying staff, can result in penalties from HM Revenue & Customs (HMRC), backdated payments, and public exposure on the Government’s ‘naming and shaming’ list. 

One of the biggest areas where businesses slip up is not knowing what actually counts towards minimum wage pay. 

What doesn’t count towards minimum wage? 

Some payments might look like part of an employee’s pay, but HMRC sees things differently. The following do not count towards the minimum wage: 

• Deductions for employer benefit – If your employees have to buy work uniforms, tools, or equipment and are not reimbursed, this reduces their official wage. 

• Travel costs to and from work – Paying for an employee’s commute? That is a benefit, not wages. 

• Tips, service charges, and cover charges – Even if employees regularly receive tips, they cannot be used to meet minimum wage requirements. 

• Bonuses for unsociable hours – Extra pay for weekend or night shifts is on top of minimum wage and cannot be included in the calculation. 

What does count towards minimum wage? 

On the flip side, the following do contribute to minimum wage pay: 

• Gross wages – The wage before deductions for Income Tax and National Insurance. 

• Advance payments – If an employee has taken a wage advance, their full gross pay still applies. 

• Employer-provided accommodation – If you provide housing and charge below the accommodation offset rate (£9.99 per day or £69.93 per week), the excess can count towards minimum wage. 

• Repayments of overpaid wages – If a worker is repaying an overpayment, their minimum wage is based on their original gross pay. 

• Voluntary deductions – If employees voluntarily pay for things like on-site meals (not essential for the job), these don’t reduce their minimum wage. 

The risks of getting it wrong 

Miscalculating wages can seriously impact your business. Employers who fall foul of the rules could face: 

• Expensive backdated payments – Any underpayments must be repaid in full. 

• HMRC scrutiny – Inspectors can demand payroll records at any time. 

• Hefty fines – You could be charged up to 200 per cent of the underpayment (capped at £20,000 per worker). 

• Public exposure – The Government regularly publishes a list of non-compliant businesses. 

With wage increases coming soon, now is the perfect time to check your payroll practices.  

Make sure your calculations are correct, deductions are legal, and employees are paid fairly. 

Need help with minimum wage calculations or any other payroll problem? Speak to our team today.