Minimum wage compliance – Key risks directors should address

Since 1 April 2025, substantial increases to the National Minimum Wage (NMW) and National Living Wage (NLW) have reshaped financial obligations for businesses across the UK.

These changes directly impact many employees but could also have unexpected consequences for directors.

Understanding your position as a director is critical because failing to adhere to minimum wage legislation carries substantial fines, criminal charges, and potentially severe reputational harm.

Updated minimum wage requirements

The current hourly minimum rates, effective since April 2025, are:

• NLW (ages 21 and older) – £12.21
• Workers aged 18-20 – £10.00
• Workers aged 16-17 – £7.55
• Apprentices* – £7.55
• Accommodation offset allowance – £10.66 daily

(*This apprentice rate covers apprentices under 19 or those aged 19+ in their first apprenticeship year. Others must receive standard age-based rates.)

Introduced following Low Pay Commission recommendations and detailed in the Autumn Budget 2024, these new rates mark an increase of as much as eighteen per cent from the previous year.

Over seven million workers nationwide are predicted to benefit directly or indirectly from these adjustments.

When directors must be paid minimum wage

A common misunderstanding among directors, particularly those operating owner-managed companies, is their obligation regarding the NMW.

Directors are typically classified as office holders, a role that alone does not trigger entitlement to minimum wage protections.

However, if a director also holds an employment contract (explicitly stated or inferred through ongoing duties and pay structures), they must be paid in line with NMW/NLW regulations.

Directors who purely hold office without employment responsibilities do not require payment under NMW laws.

Those who have employment contracts or implied employment relationships must comply with minimum wage legislation.

Liability for non-compliance remains even without explicit written contracts, provided the director’s role reflects employment-type responsibilities and regular compensation.

Important distinctions for family members

Notably, family members working within a limited company are not exempt from minimum wage rules, unlike arrangements permitted in sole proprietorships or partnerships.

Directors should ensure relatives are correctly assessed to avoid inadvertent breaches.

Steps directors should take

To minimise compliance risks:

• Determine clearly if your directorship is purely an office-holding role or also involves employment obligations.
• If employed by the company, ensure your compensation meets statutory minimum wage requirements.
• Maintain comprehensive documentation of all roles and pay arrangements to clearly reflect compliance.
• Review the position of family members working in the company regarding their minimum wage rights.
• Consider the financial implications and budget accordingly if employing staff at the lower end of wage scales.

Understanding and acting upon these obligations not only safeguards directors from potential legal and financial repercussions but also means your business maintains a strong reputation.

If you have questions or uncertainties about your minimum wage compliance, our experts are available to advise you. Contact us today.