National Minimum Wage in retail

The National Minimum Wage has been a topic of discussion for a while now in the consumer sector, in particular for retailers and hospitality businesses, and it was mentioned again during the Autumn Budget in October.

What are the National Minimum Wage and National Living Wage rates from April 2025?

2024 was the first year that the Government asked the Low Pay Commission to consider and factor in the cost of living when considering the increase to the NMW rates for 2025-26. As a result, from April 2025, the rates will see a definite increase. Specifically:

• National Minimum Wage payable to workers aged 18-20 will increase to £10 per hour – with a 16.3% increase.
• National Living Wage payable to workers aged 21 and over will increase to £12.21 per hour – with a 6.7% increase

The Government has also pledged to reduce entitlement to the NLW to those aged 18 and over across the next couple of years.

Additionally, the Apprentice and 16–17-year-old rates remain aligned at £7.55 per hour which again is another huge increase of 18%.

Why is it important for consumer businesses to start considering this issue now?

Many businesses are still trying to recover from the previous year’s increases to NLW/NMW and these increases are going to provide employers with more challenges and potentially difficult decisions to make. Although the NLW increased by 6.7%, when you factor in the increase to the national insurance contribution rate and the reduced NIC threshold, along with continued pension contributions, for every worker paid at the NLW rate, that’s roughly a 10% increase to the pay bill.

This means that pay rates are being squeezed and as getting NMW wrong, even inadvertently can lead to financial penalties of 200% of the underpayment and reputational damage from being named in the media, businesses need to make sure that they are regularly checking their NMW compliance processes.  NLW compliance remains a high priority for Gov and even more so under the new Labour Gov.  Their “Making Work Pay” campaign, amongst other things aims to ensure that all workers are receiving a genuine living wage and the implementation of the “Fair Work Agency” and an increase in compliance resource within HMRC will no doubt only see an increase in the number of audits and investigations to enforce on NMW failures

How can consumer businesses improve their processes and controls to deal with and/or mitigate some of these challenges and risks?

The majority of businesses rely on in-house payroll or are in the process of switching to in-house payroll. In either case most already have NMW compliance processes in place, either in-house or outsourced. However, one common mistake is that many employers don’t have sufficient time working records, particularly for those paid a salary. 

Their NMW checks tend to be based on contractual hours of work but I’ve seen many instances where salaried employees are working more hours than contracted to with no entitlement to additional pay. As a result, that extra time being worked has created a NMW breach. Now, it’s a common perception that it would only impact lower-paid employees but in fact an employee earning £40k per year would only need to work around an extra 10.5 unpaid hours per month for it to cause a potential breach – that’s around 2.5 hours extra per week before we even consider any salary sacrifice reduction.   

What are the benefits for consumer businesses to tackle NMW now?

Above all, reviewing your NMW controls currently in place and undertaking an audit to ensure no breaches have occurred is a great way to start. Also looking beyond what happens in payroll, as they might not be aware of particular requirements enforced on the shop floor, an easy example here is requiring a worker to wear a certain colour of shoe or a specific item of clothing, without reimbursing them for the purchase cost.

Many NMW breaches are unintentional as the rules can be complex but doing a self-review and repaying any underpayments prior to HMRC involvement avoids penalties and being named in the media as an employer who hasn’t paid NMW. 

Are there any risks specific to the hospitality sector which might be less talked about?

Overall, a lot of the risks we see are across sectors and it is mostly down to accurate recording of working time and ensuring all of it is factored into the calculation of NMW. This is most relevant for the hospitality sector where employees often work extended hours to look after their customers – a waiter can’t stop in the middle of serving a table because their shift has ended.

Another consideration for hospitality businesses is around tips. Employers at times forget that tips don’t count as pay. So, ensuring that they are not added to the calculation of NMW is essential.

What are the key takeaways businesses in the consumer sector should be aware of?

• When looking at risk, first check that your business has sufficient controls and records in place to prove that NMW has been paid to all employees. Have you got those working time records that prove time worked? Are we fully considering any impacts to pay that may reduce it for NMW purposes? This could be reductions to pay for salary sacrifice and a common risk in retail, stipulating specific items of clothing or footwear to be worn which workers have to purchase themselves – these costs will reduce NMW pay.
• In times of cost-saving initiatives to reduce the impact of the increases to NMW rates and NIC, if you’ve not got a pension salary sacrifice scheme in place, then this is a great way to reduce NIC charges for both the employee and employer.  Salary sacrifice does come with a warning though, as it may be that not all employees can join the scheme, particularly those paid at or close to NMW rates as the post-sacrifice pay needs to remain above the applicable NMW entitlement.
• Lastly, look at the reward incentives on offer. Can these be enhanced? Particularly if the percentage pay rise for those employees paid above NMW is not aligned with the 6.7% increase. A few examples of reward incentives that could be offered are: EV car schemes, holiday purchases, discount shopping schemes, and equity and share scheme incentives.

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