The National Minimum Wage (NMW) and National Living Wage (NLW) are key components of the UK’s commitment to fair pay, ensuring that workers are not paid below a basic living wage. As most people in business know, these rates are regularly reviewed, and with the ongoing rise in the cost of living, the government continues to increase them to help workers keep pace with inflation. Below we’ll look at the 2025 changes to the NMW and NLW rates, in particular what should not be included when calculating an employee’s hourly pay.
Changes to the National Minimum Wage
The National Living Wage and National Minimum Wage both increased in April 2025. Here’s a breakdown of the updated rates for 2025:
- National Living Wage (for workers aged 21 and over): £12.21 per hour (up from £11.44 in 2024)
- 18 to 20-year-olds: £10 per hour (up from £8.60 in 2024)
- 16 to 17-year-olds: £7.55 per hour (up from £6.40 in 2024)
- Apprentices: £7.55 per hour (up from £6.40 in 2024, applicable if the apprentice is under 19 or in the first year of their apprenticeship)
These increases reflect a rise of at least 6.7% across all age categories and a much higher percentage over most, a boost that’s especially significant given the persistent pressure on household budgets due to inflation.
This adjustment also continues the phased implementation of the government’s goal to bring the National Living Wage closer to the real living wage, as recommended by various advocacy groups and labour unions.
What Shouldn’t Be Included in Hourly Pay?
Having minimum pay rates for each age group should be straightforward enough however there are a number of earnings related aspects that shouldn’t form part of your calculations when working out how much to pay your hourly paid employees.
When calculating the NMW or NLW, it’s important to know which elements of a worker’s compensation do not count toward the hourly wage. Here are the key exclusions that both employees and employers need to understand:
- Tips, Gratuities, and Service Charges
Any additional payments from customers, such as tips, gratuities, or service charges, cannot be included in the hourly wage calculation. These are considered separate from wages and are voluntary payments given directly to employees. - Overtime Pay
Overtime pay, which is often higher than the standard hourly rate, is not counted toward the NMW. Only pay for regular, contracted hours worked should be included when calculating whether an employee is receiving at least the minimum wage. - Expenses
Reimbursement for expenses, including travel costs, uniforms, or equipment, does not count as wages for the purposes of the NMW. These are payments to cover business-related costs and should be kept separate from the worker’s hourly rate. - Non-cash Benefits
Some workers may receive non-cash benefits such as company-provided meals, or vehicles. While these can be valuable perks, they cannot be factored into the NMW calculation. Only direct monetary payments count toward the hourly wage. - Bonus Payments
Performance-related bonuses, one-off incentive payments, or discretionary bonuses are not included when calculating the NMW. These payments are not guaranteed and are therefore excluded from the baseline hourly pay calculation.
Why These Exclusions Matter
Understanding what can and cannot be included when calculating the NMW is critical for both employers and employees to ensure compliance. For employers, failing to pay at least the NMW can result in legal consequences, including penalties and the need to backpay workers. For employees, being aware of what doesn’t count toward the minimum wage helps ensure they are being compensated correctly.
Additionally, workers have the right to file complaints if they believe they are not being paid correctly, and the HMRC (His Majesty’s Revenue and Customs) can investigate and enforce wage laws. Employers who fail to comply with NMW regulations may face fines, can be named and shamed and in extreme cases, a ban from holding government contracts.
Conclusion
With the April 2025 changes to the National Minimum Wage and National Living Wage, the UK continues to move toward higher wages for workers, aiming to ensure fair compensation amid a challenging economic climate. Understanding the exclusions in hourly pay calculations is just as important as knowing the wage rates themselves—this ensures both workers and employers are on the same page and that workers are paid fairly for their labour. By staying informed about these changes, companies and partnerships can avoid falling foul of the law with and the potential for fines.National Minimum Wage April 2025
