National minimum wage underpayments and how to prevent them

In our recent article on the pitfalls of national minimum wage, we explored the hidden risks that continue to catch businesses out — particularly around deductions, unpaid hours and the complex mechanics of salaried worker calculations.

Newly released 2025 data now shows that the situation has deteriorated significantly. Underpayment is even more widespread than previously understood. The pressures on payroll teams are intensifying, and vulnerable groups are falling further behind. This article examines the latest figures, why they matter, and the practical steps HR and payroll teams must take urgently.

It is also worth noting that HMRC have been taking a geographical approach to enforcement and issuing ‘nudge letters’. They started in the South-East, moved to the North and are currently focusing on the Midlands. Their next area may be employers in the South West.

Underpayments are on the rise

The headline figure is stark. In 2025:

• 445,000 UK workers were underpaid, compared with
• 382,000 in 2024 — a 16.5% increase in just one year.

This represents 22% of all employees covered by the legislation. More than one in five workers who should be protected by minimum wage rules did not receive the pay they were legally entitled to.

This marks a concerning shift from what had previously been viewed as a problem contained to specific sectors or demographic groups. It is now demonstrably a structural issue affecting every industry.

Disproportionate impact

The headline figures hide significant disparities across worker groups:

• Apprentices continue to face the highest underpayment rates at 2% underpaid in 2025 (down from 31% in 2024). While this is an improvement, the overall rate remains high
• A major deterioration among 16–17‑year‑olds. Underpayment has jumped from 7.8% to 11.9%
• This suggests a systemic failure to protect the youngest and least experienced workers — those with the least power to challenge errors

The data reinforces that underpayment is not distributed evenly, possibly impacting those with the least knowledge of their rights on account of being newer to the workforce.

Sector by sector landscape

The landscape of the job market varies greatly across different sectors. Some sectors of the job market have much a higher proportion of their workers paid at or around the minimum wage or are more likely to hire apprentices or younger workers. Key industries impacted in this way include the hospitality sector and health and social care.

Still further, the total wage bill makes up a much larger proportion of the cost base in some industries, which once again particularly applies to the health and social care sector. Employers in these sectors may feel the impact of in national minimum wage more strongly and be more at risk of penalties as a result.

Specific consequences could occur for public sector employers, from NHS trusts to schools and local councils, unless their funding is uplifted to reflect the additional cost. This typically happens but is not always guaranteed. Charities on the other hand, face no such uplift, and an increase in the minimum wage will not by no means guarantee an increase in charitable donations being made by the public.

Finally, the construction industry may face specific challenges. As well as having a significant proportion of workers being paid the national minimum wage, tradesman may already be tied into medium to long-term contracts agreed based on wage costs at the time. Where national minimum wage rates increase mid-contract, employers in this industry may be forced to absorb the additional costs and suffer reduced profit margins as a result.

Salaried workers and hidden underpayment risks

Perhaps the most striking and significant finding is the scale of underpayment among salaried staff. Namely that 44% of salaried minimum wage jobs were underpaid in 2025.

It appears that as national minimum wage rates rise, increasing numbers of employers inadvertently fall short of the threshold, potentially as payroll software isn’t equipped to process the complex calculations underpinning the legislation.

The calculation for hourly workers is simpler in comparison, but for salaried workers underpayments are much harder to spot, requiring detailed and little-understood calculations to be performed.

Underpayment typically occurs when:

• Contracted hours don’t reflect actual working patterns
• Annual salaries are not uplifted in line with annual NMW increases
• Uniform, equipment or accommodation deductions reduce the effective hourly rate
• Salary sacrifice schemes (such as for pensions) aren’t factored correctly

These are rarely deliberate breaches. Most are accidental underpayments — but HMRC treats intent as irrelevant. Employers are liable to significant penalties regardless.

What can employers do to reduce underpayment risks?

The 2025 findings can highlight key areas where employers can take action.

• Pay close attention to apprentices and younger adults, ensuring that they are currently being paid at least national minimum wage rates now, but also after each future increase in the rate they are due. Namely, when the headline rates increase or when the employee’s age moves them into a higher wage category
• Documentation of the underlying calculations of pay rates paid to staff and communicating this to staff, where appropriate
• Confirm whether your existing payroll software is equipped to handle national minimum wag compliance
• Perform a focused check on salaried employees and those with deductions from wages – considering actual hours worked and salary sacrifice implications
• In depth training of payroll and HR staff to understand the complex and increasingly heavily enforced national minimum wage legislation

The risks of getting underpayment wrong

As a reminder, consequences for even inadvertent non-compliance are very significant.

• Payment of underpaid national minimum wage liabilities, at the current applicable rate, for up to the past six years
• In addition to this, penalties of up to 200% of the underpayment, capped at a not insignificant £20,000 per worker
• Public naming and shaming by the Department for Business and Trade
• The risk of employment tribunals

In short, we recommend taking prompt action to reduce the risks of a compliance breach.

PKF Francis Clark remain on hand to support your business with national minimum wage compliance.