Reports to HMRC about underpayment have risen sharply in recent years. With wage rates increasing and cost pressures continuing, more businesses may be at risk of breaching NMW requirements, often without realising it.
For many employers, it is a growing legal and reputational risk.
Why NMW breaches are increasing
HMRC received over 7,600 tip-offs about employers failing to pay the NMW in the last year alone. The number of reports has risen consistently over the past five years.
From 1 April 2026, the National Living Wage increased to £12.71 per hour for workers aged 21 and over, with further rises for younger workers and apprentices. For businesses in sectors such as retail and hospitality, where pay levels are often close to the legal minimum, these increases can be particularly difficult to absorb.
How employers can breach the rules
Many NMW breaches are not deliberate. In practice, it can be easy for employers to fall below the legal threshold through payroll errors, misunderstandings, or outdated processes.
Common issues include:
- Deductions from wages for items such as uniforms, travel, or meals, which can reduce pay below the minimum level
- Failing to pay for all time worked, including training, travel time or overtime
- Rounding down working hours when calculating pay
- Paying fixed day rates or ‘standard’ hours when employees regularly work longer.
Even small calculation errors can result in underpayment and regulatory scrutiny.
The risks of getting it wrong
The consequences of breaching NMW rules can be significant.
HMRC has increased its enforcement activity, with investigations and penalties rising in the last year. Employers can be fined up to 200% of any underpayment, in addition to being required to repay affected employees.
There is also the risk of being publicly named by HMRC for non-compliance. This can cause reputational damage, particularly where customers, employees, and stakeholders expect fair treatment of staff.
Employees are also increasingly aware of their rights and may be more willing to report concerns, particularly during periods of financial strain.
What employers should do now
Given the increased scrutiny, employers should take a proactive approach to compliance.
Practical steps include:
- Reviewing pay structures to ensure they meet current NMW requirements
- Checking how deductions affect overall pay
- Ensuring all working time is recorded and paid correctly
- Auditing payroll processes regularly to identify and correct errors
- Keeping up to date with changes to wage rates and employment legislation.
Regular compliance checks can help identify issues early and reduce the risk of penalties, enforcement action, and disputes.
How TWM can help
At TWM Solicitors, our Employment Law team advises employers on National Minimum Wage compliance and wider payroll risk.
We can help you review your pay practices, identify potential vulnerabilities, and ensure your business meets its legal obligations. We also support employers in responding to HMRC investigations and resolving disputes where they arise.
If you would like advice on NMW compliance or managing employment risk, please contact our Employment Law team for clear, practical guidance.
