HMRC National Minimum Wage checks on the rise - is your business prepared?

From experience supporting clients through these discussions, HMRC’s questions have followed a consistent pattern. They typically focus on understanding how a business operates, how employees are paid and whether working practices could inadvertently result in NMW underpayments.  

Topics discussed have included:  

• The nature of the business and its workforce.   
• Employee roles and working patterns.   
• Opening hours and whether staff are expected to arrive before or remain after their paid shift.   
• Hourly rates of pay across different age bands.   
• Payroll processes and record keeping.   
• How employers monitor age-related changes to NMW rates.   
• Payroll deductions and their impact on NMW calculations.   
• Overtime and pay periods.   
• Travel time between sites.   
• Apprentices.   
• Accommodation provided by the employer.   
• Salary sacrifice arrangements.   
• Whether mandatory training time is paid.   
• Work clothing requirements and any associated costs.   

Ruth added: “HMRC has confirmed to us that businesses may be selected for review for a variety of reasons, including employee or third-party complaints, geographical campaigns or because they operate within particular industries. Receiving a letter doesn’t necessarily mean HMRC believes something is wrong, but it does mean employers should be prepared to demonstrate that their processes are robust.”  

Alongside responding to complaints and targeting particular industries, HMRC is increasingly adopting a geographical approach to NMW compliance, focusing on specific regions before moving on to the next. Recent industry commentary suggests the latest phase of this programme is expected to focus on employers across the Home Counties.  

While receiving a letter does not necessarily indicate a compliance issue, businesses in these areas may wish to take the opportunity to review their payroll processes, record keeping and working practices before any contact from HMRC.  

Ruth said: “We’ve seen first-hand how these campaigns operate. Employers are often given the opportunity to review their own arrangements before HMRC undertakes a more detailed examination. That’s a valuable opportunity, but it’s always better to identify and resolve any issues before HMRC gets in touch.  

Our discussions with HMRC suggest that several issues continue to arise during compliance reviews.  

These include:  

• Unpaid working time, such as opening up premises or closing down after shifts.   
• Training undertaken outside paid working hours.   
• Travel time between work locations.   
• Work clothing requirements where costs may reduce pay below the NMW.   
• Accommodation arrangements provided by employers.   

Many of these issues arise unintentionally, particularly where working practices have developed over time or where payroll teams are unaware of the wider employment arrangements.  

NMW legislation is more complex than simply paying the correct hourly rate. The way employees are paid, the deductions made from their wages and the time they spend working can all affect whether an employer is compliant.  

A proactive review can help identify potential issues before HMRC raises them, giving businesses time to make any necessary changes and demonstrate that appropriate controls are in place.  

Ruth said: “Most employers want to do the right thing, but NMW compliance isn’t always straightforward. Small operational practices that seem insignificant can sometimes have unexpected implications.  

“Our advice is simple: if you receive correspondence from HMRC, don’t ignore it. Seek advice early. It’s far easier to review your processes at the beginning of the conversation than to try and resolve issues later.”  

The way NMW compliance is monitored is changing. From April 2027, responsibility for enforcing the NMW will transfer from HMRC to the new Fair Work Agency, bringing together a number of existing enforcement functions under a single body.  

While the full operational approach is still being developed, the new agency is expected to take a broader role in enforcing employment rights, with NMW compliance forming a key part of its remit. This could lead to a more joined-up approach to inspections and enforcement, placing greater emphasis on employers having robust payroll processes, accurate records and clear evidence of compliance.  

Ruth added: “Although HMRC currently remains responsible for NMW enforcement, employers should already be thinking ahead. The introduction of the Fair Work Agency is likely to increase the focus on employment compliance more generally, making it even more important for businesses to review their payroll processes, policies and record keeping. Taking action now will put employers in a much stronger position when the new regime comes into effect.”  

With HMRC increasing its focus on NMW enforcement, now is the time to review your payroll processes, working practices and record-keeping. Old Mill’s payroll and employer services specialists can help identify potential risks, strengthen compliance procedures and support you through any HMRC enquiries. Get in touch with Ruth Evans or another member of the payroll team to discuss how we can help protect your business.