Directors and the minimum wage – The compliance risks you may be overlooking

Since 1 April 2025, new National Minimum Wage (NMW) and National Living Wage (NLW) rates have applied across the UK, bringing substantial increases that affect employers of all sizes.

While the changes are designed to benefit millions of workers, directors, particularly those in owner-managed businesses, need to be clear about whether and how these rules apply to them.

Failure to comply with minimum wage law is a criminal offence and carries financial penalties and reputational risks.

New rates now in force

The updated wage rates introduced this spring reflect the Government’s continued aim to close pay gaps across age groups and link the NLW to two-thirds of median earnings.

As of 1 April 2025, the current hourly rates are:

• Workers aged 21 and over (NLW) – £12.21
• 18 to 20 year olds – £10.00
• 16 to 17 year olds – £7.55
• Apprentices – £7.55*
• Accommodation offset – £10.66 per day

*Applies to apprentices under 19 or those aged 19 and over who are in the first year of their apprenticeship. All others are entitled to the NMW/NLW for their age group.

These changes represent increases of up to 18 per cent compared with the previous year.

The rises were first announced in the Autumn Budget 2024, following recommendations from the Low Pay Commission (LPC).

According to Government estimates, the new rates are benefiting more than seven million workers, around three million directly and four million through knock-on effects on pay structures.

Do directors need to be paid the minimum wage?

This is where the rules become more complex.

Not all directors are automatically entitled to the NMW. The determining factor is whether a director is also classified as a worker under the relevant legislation.

A director is typically considered an office holder, a position that does not in itself entitle the individual to the NMW.

However, where a director has a separate employment relationship with the company, for example, a contract of employment involving mutual obligations, then the NMW rules do apply to the work carried out under that contract.

• A director without an employment contract (and where no contract is implied) is not entitled to the NMW.
• A director with an employment contract, whether written or implied, is entitled to be paid at least the appropriate NMW or NLW rate for the work covered by that contract.
• The absence of a written contract does not remove liability. A contract can be inferred based on the facts, for instance, regular working hours, specific duties, and payment arrangements.

It is also important to understand that while family members working in a business operated by a sole trader or partnership may fall outside of NMW obligations, this exception does not apply to limited companies.

If family members work for the company, they may well be entitled to the NMW depending on the circumstances.

Non-compliance can lead to criminal sanctions, fines, and public naming for offending employers.

Directors must ensure their own status, and the status of others on the board, is properly reviewed.

If you are a director, it is worth considering the below:

• Are you purely an office holder, or do you have an employment contract (written or otherwise)?
• If you are on the payroll under a contract of employment, confirm that your pay aligns with the applicable NMW or NLW rate.
• Ensure your responsibilities, contracts and pay structures are well documented to avoid ambiguity.
• If relatives are working in the company, assess whether they are covered by NMW rules.
• If you employ workers on lower pay bands, budget for the increased costs now in effect.

While the rise in the minimum wage will be welcomed by many, it brings added responsibilities for employers, and directors are not exempt.

If you are unsure about your obligations or how these changes affect your own position as a director, our team can help you assess the situation and stay on the right side of the law. Speak to us today for professional advice.