National Minimum Wage compliance for advances and loans

business man walking in front of glass building with palmtree reflection with suitcase while in phone

Whilst HM Revenue & Customs (HMRC) is currently focusing its resources on supporting as many businesses as possible, it’s important for businesses to ensure they remain compliant with minimum wage requirements.

It’s clear that employers still need to pay the National Minimum Wage (NMW), with the planned increase from £8.21 per hour to £8.72 per hour taking place on Wednesday 1 April 2020, where employees are still working.

The government has provided supplementary guidance for employers who may be considering pay advances and employer loans for their workers. This is to make sure you get it right, whatever the circumstances.

Pay advances – keep this clearly recorded.

Any deductions from a worker’s pay to recover a previous advance of pay – will not reduce a worker’s pay for minimum wage purposes.

The advance or loan does not count for NMW purposes in the period the money is paid to the worker, but for the period of work it relates to.

Employer loans – again keep this clearly documented.

Any deductions linked to the repayment of the loan will not reduce the worker’s minimum wage pay.

HMRC’s example

Care Limited employs Nick, who is 27 years old and paid minimum wage. To ensure Nick is not left without pay whilst the company sorts out its new trading environment, Care Limited agrees to pay an advance for hours to be worked at a later time.

The worker does no work for two weeks and makes up the hours in the following four weeks once new procedures and practices have been put in place. Nick doesn’t necessarily have to make the additional hours up in the next pay reference. The employer recovers the advance by working the additional hours as follows:

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Hours due to work 20 20 20 20 20 20
Actual hours worked 30 30 30 30
Pay £261.60 £261.60 £261.60 £261.60
Advance £174.40 £174.40
Repayment £87.20 £87.20 £87.20 £87.20
Pay for minimum wage £261.60 £261.60 £261.60 £261.60
Hourly rate £8.72 £8.72 £8.72 £8.72
Workers cash in hand £174.40 £174.40 £174.40 £174.40 £174.40 £174.40


Whilst Nick may be receiving ‘less’ than their minimum wage entitlement of £261.60 in the final four weeks, the deducted amount does not affect their minimum wage pay as it is a recovery of the advance made in the first two weeks.

Again, the crucial point is that this is properly documented and agreed by all parties.

If you have any queries about NMW calculations, please contact your usual Saffery Champness partner.