Are You Accidentally Paying Below Minimum Wage Without Realising It? A Hidden Risk for Charities and SMEs
Do you have staff on a salary below £25,274.70 and they work 37.5 hours a week?
There’s a good chance you’re at risk of underpaying the National Minimum Wage even if you think you’re compliant.
This is not theoretical. HMRC has been naming, shaming, and fining charities and businesses for this exact mistake – often going back five years in arrears.
In this article, I’ll explain how this happens, why salaried staff are at higher risk than hourly-paid workers, and how to quickly check whether your organisation is exposed.
Why This Is a Problem (Even If You Pay ‘Above Minimum Wage’)
On paper, the calculation seems simple:
£12.21 per hour × 37.5 hours per week × 52 weeks = £23,809.50 annual salary
So employers think “We pay £24,000, so we’re covered.”
But HMRC doesn’t calculate minimum wage annually.
They look at each pay reference period (usually monthly) and divide actual monthly hours worked into actual pay received that month.
If a month has more working days than average, the number of hours increases, but the salary doesn’t.
That means your effective hourly rate drops. If it falls below £12.21, you are in breach of National Minimum Wage law.
2025 Working Day Variations – Why Salaried Workers Are at Risk
In 2025:
- 5 months have fewer working days (you’re usually safe)
- 7 months have more working days (you are at risk)
That means a salary that appears compliant on an annual basis can fall below the minimum wage on a month-by-month basis.
HMRC Guidance (What the Law Actually Says)
According to HMRC:
“Every hour worked in a pay reference period must be paid at or above the National Minimum Wage. Employers must not rely on annualised or averaged calculations.”
Source: https://www.gov.uk/minimum-wage-different-types-work/paid-by-the-hour
HMRC has publicly listed employers, including charities, for failing to meet this requirement.
They don’t care if it was a mistake.
They don’t care if the employee never complained.
If your calculations are wrong, you will be fined, back-pay will be ordered, and your organisation can be publicly named.
National Minimum Wage Rates (Effective April 2025)
National Living Wage (21+) - £12.21
Age 18–20 - £10.18
Under 18 & Apprentices - £7.49
This article focuses on the £12.21 rate, as most salaried full-time employees in charities fall under the National Living Wage category.
Example: A Salary That Appears Safe (But Isn’t)
Employee A
Salary: £24,000 per year
Weekly hours: 37.5 (7.5 hours per day)
Paid monthly
In April (with 21 working days):
Monthly hours = 157.5
£24,000 ÷ 12 = £2,000 per month
Effective hourly rate = £2,000 ÷ 157.5 = £12.70 (Compliant)
In October (with 23 working days):
Monthly hours = 172.5
Effective hourly rate = £2,000 ÷ 172.5 = £11.59
This is BELOW minimum wage – you are now in breach.
Why This Matters for the Charity Sector
Charities face higher reputational stakes than corporate entities. A single underpayment claim or HMRC enforcement notice can:
- Damage donor trust
- Trigger safeguarding and governance reviews
- Appear publicly in government reports
- Lead to costly back payments, penalties, and legal advice
This is not simply payroll admin, it is a governance issue.
How to Check If You're at Risk
To remain compliant, you must calculate effective hourly rate each month using:
Formula: Monthly salary ÷ (Working days × Daily hours)
If the result is below £12.21, you are in breach.
To make this easier, I’ve created a ready-to-use Excel Compliance Checker that automatically calculates this for all months in 2025 and flags breaches in red.
Email me here to get a copy, and just put 'WAGE CHECK' as the subject line.
HR Compliance Check, Protect Your Charity
Need some help? Book a 30-Minute Minimum Wage Compliance Check
I’ll review your salaries, contracts, and working patterns, and confirm whether your organisation is fully compliant.
Includes: risk analysis, recommendations, and practical fixes you can implement immediately.
Investment: £197
Frequently Asked Questions
1. Does minimum wage apply to salaried employees?
Yes. HMRC calculates minimum wage based on hours worked in each pay period, even for salaried workers.
2. Can I average salary payments across the year?
No. Each month must stand alone. If an employee works more hours in a given month, their effective hourly rate must still meet or exceed the minimum wage.
3. What happens if I underpay the minimum wage accidentally?
You will be required to pay the difference, plus penalties of up to 200% of arrears. HMRC may also publicly name your organisation as non-compliant.
4. How far back can HMRC investigate?
Up to six years. Many recent cases have gone back five years with back pay demanded for every affected employee.
5. Are charities exempt from minimum wage rules?
No. Charities must comply in the same way as any other employer.
6. What salary is required to guarantee compliance?
In 2025, a full-time employee working 37.5 hours per week needs to earn at least £25,274.70 annually to ensure minimum wage compliance in all months.
In Conclusion...
This is one of those hidden HR risks that doesn’t show up until it’s too late.
Most employers think they’re compliant because they look at annual salary.
HMRC looks at every single month.
Don’t wait for a fine or a reputation crisis.
- Get the wage checker tool.
- Audit your salaries.
- Protect your staff, your trustees, and your mission.
Want it sorted?
Email me here to get a copy, and just put 'WAGE CHECK' as the subject line.