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£5.8 Million Owed: 5 Critical Reasons Why HMRC Says Christmas Workers Are Still Being Underpaid

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The festive season of late 2025 is once again ringing alarm bells for thousands of temporary workers across the UK, as HM Revenue and Customs (HMRC) has issued a stark warning urging all seasonal staff to "Check Your Pay." This urgent call comes directly after a staggering revelation from the 2024-2025 tax year, where HMRC identified £5.8 million in wage arrears that were owed to more than 25,200 underpaid workers. The sheer scale of non-compliance, which also resulted in the tax authority issuing approximately 750 penalties totalling £4.2 million to businesses, highlights a persistent and costly problem for temporary staff in retail, delivery, hospitality, and warehouse sectors during the busiest time of the year.

The issue is a dual threat: not only are workers being short-changed on their basic wages and holiday entitlement, but they are also frequently subjected to costly administrative errors related to their tax and National Insurance (NI) deductions. HMRC’s message is clear: payroll compliance is non-negotiable for all employers, regardless of the contract length. Seasonal workers, students, and those on short-term contracts are legally entitled to the same minimum pay and correct tax treatment as permanent staff. Understanding the common pitfalls is the first step to ensuring you receive every penny you’ve earned this Christmas.

The Critical 5-Point Checklist: Reasons Seasonal Workers Are Underpaid

The underpayment of seasonal staff is rarely a single issue; it is typically a combination of National Minimum Wage (NMW) breaches and complex payroll administration errors. For those starting temporary work in late 2025, being aware of these five critical areas is essential for protecting your income.

1. National Minimum Wage (NMW) and National Living Wage (NLW) Non-Compliance

This is the most direct form of underpayment and accounts for a significant portion of the £5.8 million in identified wage arrears. Many employers, particularly those rapidly hiring large volumes of staff, fail to correctly apply NMW and NLW rules.

  • Unpaid Hours: Failing to pay for all time worked, including mandatory training, security searches, or time spent opening and closing a shift.
  • Illegal Deductions: Making illegal deductions from wages for items like uniforms, tools, or accommodation, which brings the worker's effective pay rate below the legal minimum.
  • Incorrect Rate for Age: Applying the wrong minimum wage rate based on the worker’s age bracket (e.g., paying a 23-year-old the 21-22 rate).

2. Incorrect Use of Emergency Tax Codes

Temporary workers, especially students or those taking on a second job, are highly susceptible to being placed on an incorrect tax code, often the 'Emergency Tax Code' (e.g., 0T, S0T, L codes on a week 1/month 1 basis).

When you start a new job and your employer does not have your correct P45, they must use an emergency tax code. This code often fails to apply your full tax-free personal allowance, resulting in an immediate over-deduction of income tax. While this is technically an overpayment of tax rather than an underpayment of wages, it leaves the worker with less money in their pocket right when they need it most—during the Christmas period. This error is common because of the speed of seasonal hiring and the lack of a P45 from a previous employer.

3. Failure to Pay Statutory Holiday Entitlement

A common misconception is that temporary or zero-hours contract staff are not entitled to holiday pay. This is false. All UK workers, regardless of their contract type or duration, are legally entitled to paid annual leave.

For seasonal workers, the issue often arises in two ways:

  • No Holiday Pay Calculation: The employer fails to calculate and pay accrued holiday entitlement, which should be based on 12.07% of the hours worked.
  • Incorrect Pay Rate: When holiday pay is paid, it is calculated incorrectly, often using a basic rate rather than the average pay over the previous 52 working weeks.

How to Check Your Pay and Reclaim Lost Money in 2025

The responsibility to "Check Your Pay" falls squarely on the worker. Errors can usually be corrected quickly if flagged early, but the longer you wait, the more complex the resolution becomes.

Step 1: Scrutinise Your Payslip Immediately

Your payslip is the single most important document. You must check it against your employment contract and the hours you actually worked. Look for these key entities:

  • Gross Pay: Does the total number of hours worked multiplied by your hourly rate match the figure? Cross-reference this with your weekly rota or timesheet.
  • Tax Code: Is your tax code correct? For most people with one job, it should be 1257L (for the 2025/2026 tax year). If you see '0T', 'W1', 'M1', or 'X', you are likely on an emergency tax code and paying too much tax.
  • National Insurance (NI): Ensure the correct NI contributions have been deducted based on your earnings.
  • Holiday Pay: Check if a separate line item for holiday pay has been included, especially if you are on a short-term contract where it is rolled up into your hourly rate (though this practice is often legally complex).

Step 2: Address Minimum Wage or Holiday Pay Shortfalls

If you suspect you have been paid below the National Minimum Wage or have not received your statutory holiday pay, you should:

  1. Talk to Your Employer: Raise the issue with your line manager or the HR/Payroll department immediately. Provide evidence from your payslip and timesheets.
  2. Contact ACAS: If your employer refuses to correct the NMW/NLW issue, you can contact the Advisory, Conciliation and Arbitration Service (ACAS) for free, impartial advice.
  3. Report to HMRC: NMW non-compliance can be reported directly and confidentially to HMRC, who can then launch an investigation, as they did to identify the £5.8 million in arrears.

The Tax Code Correction Process: Getting Your Overpaid Tax Back

If the underpayment is due to an incorrect tax code (meaning you have overpaid tax), the resolution process is handled by HMRC itself.

The P800 Tax Calculation

HMRC automatically reviews the tax affairs of millions of PAYE customers after the end of the tax year (April 5th). If you have overpaid tax due to an emergency tax code, HMRC will send you a P800 Tax Calculation. This document will detail the overpayment and explain how you can claim your refund, either directly into your bank account or through a cheque.

However, you do not have to wait until the end of the tax year. If you spot an error on your payslip now, you can contact HMRC directly via their online services or phone line to request an immediate tax code review. Providing your employer's PAYE reference and your National Insurance number will speed up the process significantly. Correcting the tax code now means your future pay packets will have the correct deductions, stopping the overpayment immediately.

The sheer volume of temporary hiring during the festive period creates a perfect storm for payroll errors. With over 25,000 workers short-changed last year, the message to every seasonal employee in late 2025 is clear: vigilance is your best defence. Always check your payslip, understand your legal entitlements to NMW and holiday pay, and do not hesitate to contact HMRC or ACAS if you suspect an error. Your Christmas pay should be a reward for your hard work, not a source of financial stress.

hmrc christmas workers underpaid
hmrc christmas workers underpaid

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