What should not be included in National Minimum Wage calculations

Jun 26, 2023 | Terms and Conditions

Calculating whether your workers are receiving the correct minimum wage rate can be challenging, and sometimes it is a legal minefield remembering what is not included in NMW calculations. It’s not just about paying the correct hourly rate – you may make other payments or need to make deductions and it’s important to know when these should be ‘counted’ for the purposes of minimum wage compliance.

The following explains what you should remember not to include when paying your employees the NMW.

Tips and service charges

Once commonly used by hospitality sector to ‘top up’ pay, it is now illegal to include any tips or services charges either given to employees directly or paid to them by you through payroll as part of their NMW calculations. Previously, tips and gratuities paid to your workers through the payroll could be taken into account but this is no longer the case.

Benefits in kind

Benefits you provide to your employee cannot be taken into account, even where these do have a monetary value. This includes meals, luncheon vouchers, childcare vouchers, medical insurance, petrol, employer pension contributions and use of a company car.


Are you providing expenses to your employee? Then these also should not be considered to be part of their pay for NMW calculations. As you are reimbursing an employee for expenses they are incurring in their role, it is not something that should be used to meet the NMW requirements as they are separate to their salary. This includes travelling expenses and subsistence costs.


If your worker receives an allowance that is not consolidated into their normal pay then it cannot be counted for minimum wage purposes. This would include a London weighting, an allowance for being on call, or similar, and may also include a car allowance.

Overtime premium

If you offer a premium over and above the basic rate of pay for overtime work or for certain shifts, only the basic rate can be included for minimum wage purposes, and any additional payments made should be discounted.

Salary premium

A salary premium is similar to overtime premium as above, and is defined as an amount of pay in addition to the annual salary or an increase in the rate of pay for particular hours, but unlike the overtime premium, is in respect of the worker’s basic hours. It must be attributable to working:

  • At a particular time of the day;
  • On a particular day;
  • At a particular location;
  • In a particular working environment;
  • Within a particular geographical area;
  • On a particular task; or
  • Subject to a particular responsibility.

As with the overtime premium, where the premium is an increase in a rate of pay for particular hours, the amount of the increase does not count for NMW pay, but the basic pay does.

Wage advances or loans

If you give workers an advance on their wages, or a loan, you cannot include this for the purposes of minimum wage and should calculate their pay for that pay period without it.

Redundancy payments or retirement lump sums

Both of these must also be discounted when calculating minimum wage – if you are making someone redundant and they will be receiving redundancy pay, this has to be on top of their normal pay and can’t be included. The same applies to lump sums a retiring worker may receive.

As outlined above, the rules surrounding NMW can be a minefield but important to remember when doing your calculations, particularly if your pay arrangements are slightly more complex and include different rates and allowances. Understanding the rules around NMW will help prevent any legal issues occurring but if you’d like some guidance or support on this topic, do get in touch.