Why Not All Pay Elements Count Towards NMW
National Minimum Wage compliance is becoming a growing issue across the NHS. Trusts often assume their payroll structure is sound, only to find during an HMRC review that some pay elements have been included incorrectly. Even a small mistake can produce a large backdated liability, interest, and penalties.
A common problem is the belief that every pound paid to a worker counts towards their National Minimum Wage pay. HMRC is very strict about what can and cannot be included, and any misunderstanding puts an NHS body at risk of a compliance check.
This update sets out the core rules so payroll and finance teams can sense-check where risks may sit before HMRC does.
What Can Be Counted in NMW Pay
When reviewing your payroll for NMW compliance, each pay element must be considered on its own terms. Some payments can be included if they form part of standard pay and are structured correctly.
Included in NMW pay:
- Basic pay for hours worked
- Performance-related bonuses and incentive payments
- Most annual bonuses, if allocated proportionally
- Consolidated allowances that form part of routine pay
For many NHS roles, these elements are straightforward. Issues usually arise where additional enhancements are common.
What Must Be Excluded from NMW Pay
Several payments that appear helpful to the employee cannot be included in the NMW calculation.
Excluded from NMW pay:
- Overtime and shift premiums above basic rate
- Tips, gratuities, and service charges
- Allowances for unsocial hours or high-risk work
- Expense reimbursements
- Benefits in kind other than the permitted accommodation offset
- Employer pension contributions, loans, and redundancy payments
For NHS Trusts, the volume of enhancements and allowances can make this review more complex than it seems.
The Overtime and Premiums Trap
One of the most common pitfalls in NHS payroll is the treatment of overtime and shift premiums.
Only the basic rate can count towards NMW.
For example, if a worker is paid a basic rate of £12 per hour and £15 per hour for overtime, the NMW calculation can only use £12 per hour for every hour worked. The additional £3 per hour must be excluded.
HMRC takes a firm view on this because including premiums could give the appearance of meeting the minimum wage when the underlying basic rate is below it. These errors are easy for HMRC to identify in a compliance review and can generate significant backdated liabilities for NHS bodies.
Why This Matters for NHS Organisations
NHS payroll structures involve a wide range of enhancements, allowances, flexible working arrangements, and historic pay variations. This means NMW risks often sit unnoticed until HMRC makes contact.
A compliance review can be resource-intensive and difficult to resolve once HMRC has identified an issue. Early checks reduce the chance of avoidable costs and help ensure the Trust can evidence compliance if asked.
Support for NHS NMW Compliance Checks
CRSTAX works with NHS bodies to review pay elements, identify where the rules have been applied incorrectly, and help reduce risk before HMRC reviews arise. A clear view of what counts, what does not, and how this plays out across your payroll structure can prevent avoidable costs and administrative pressure.
If you want reassurance on your NMW position
We can carry out a confidential compliance review, highlight any areas of concern, and help you resolve them before they lead to a backdated liability.
Contact the CRSTAX team to arrange a review or to discuss your current NMW approach.
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