April is always a busy time for payroll teams, with new legislation and rate changes coming into force. However, the National Minimum Wage (NMW) increases scheduled for 2026 are particularly significant.

The upcoming rises for apprentices and workers under 21 are among the largest seen in recent years. While higher wages are positive for employees, they also mean many businesses may find themselves much closer to the boundaries of compliance than they expect.

For owner-managed businesses, understanding where the risks lie is essential. Below we highlight some of the most common issues that arise when reviewing NMW compliance and the practical steps businesses can take to avoid costly mistakes.

National Minimum Wage is not just an hourly rate

A common misunderstanding is that compliance with the National Minimum Wage simply involves paying the correct hourly rate. In reality, the rules are more complex.

The way pay is calculated depends on the type of work an employee performs, such as:

• Salaried hours work
• Time work
• Output work
• Unmeasured work

Correctly identifying the category is crucial because it determines how the employee’s pay is converted into an hourly equivalent.

Salaried employees can also create complications. Depending on the payroll structure and working patterns, calculations may require the use of 52, 52.14 or 52.18 weeks in the year. Using the wrong basis can lead to small discrepancies that gradually build into underpayments.

A simple internal payroll guide that clearly outlines how each type of worker is calculated can help maintain consistency and reduce risk.

Deductions can affect minimum wage compliance

One of the most common causes of accidental breaches is deductions related to employment costs.

Even if deductions are not immediately obvious on a payslip, certain expenses required for the job can reduce pay when assessing compliance with NMW rules.

Uniform policies are a well-known example. If employees are required to purchase specific items, such as black shoes or particular clothing, the cost of those items is treated as reducing their pay for minimum wage calculations. Several well-publicised cases involving large retailers and restaurant chains have highlighted how uniform requirements can unintentionally create widespread underpayments.

Other deductions that may affect compliance include:

• Tools or equipment needed for the role
• Meals provided by the employer
• Training costs
• DBS checks
• Till shortages or cash discrepancies

Accommodation is also treated differently under the law and must be assessed using the official accommodation offset rules.

Employers should review whether required items are reimbursed or ensure pay levels provide sufficient margin above the minimum wage.

Apprentices and younger workers

Employees under 21 and apprentices are particularly sensitive groups when it comes to NMW compliance, especially following the upcoming rate increases.

Their circumstances often change throughout the year, and it is easy for businesses to miss key milestones. Common issues include:

• Failing to apply the higher rate when an apprentice moves into their second year
• Missing a birthday that moves a worker into a new age band
• Incorrectly applying apprentice eligibility rules

These issues are usually simple to correct once identified, but they can go unnoticed if payroll systems are not monitored carefully.

Setting automatic reminders for birthdays and apprenticeship progression dates can help ensure changes are applied at the correct time.

Salary sacrifice arrangements

Salary sacrifice schemes remain popular, particularly for benefits such as cycle-to-work programmes or electric vehicle schemes.

However, salary sacrifice cannot legally reduce an employee’s pay below the National Minimum Wage.

Many employers carry out an initial check when the scheme begins, but problems can arise later if circumstances change. For example, if an employee increases pension contributions or adjusts benefit levels during the year, their pay could fall below the required threshold.

Regular monitoring is essential to ensure ongoing compliance.

Recording working time accurately

NMW compliance is closely linked to the number of hours an employee is considered to have worked.

In practice, many employers unintentionally under-record working time. Examples include:

• Travel between client locations
• Waiting or standby time
• Sleep-in shifts
• Brief periods of unpaid work before or after scheduled hours

Another common issue is time rounding. If payroll or time-tracking systems round working time down to the nearest 15 or 30 minutes, this can gradually reduce paid hours and lead to an underpayment.

Using accurate time recording systems or fair rounding rules that do not disadvantage employees can help reduce this risk.

Scheduling and rota management

Work scheduling may not immediately appear to be a payroll concern, but it can have a direct impact on minimum wage compliance.

Issues can arise when:

• Shifts are shortened or cancelled
• Breaks are automatically deducted even when not taken
• Variable-hours workers do not receive their expected hours

Often, rota management is handled by operational teams while payroll only processes the final hours recorded. Improving communication between these functions can help identify and resolve potential issues early.

Checking payroll systems and processes

Many compliance risks can be prevented by ensuring payroll software is correctly configured before the April changes take effect.

Businesses should review areas such as:

• Updated NMW rates
• Age band settings
• Apprentice categories
• Pay reference periods
• Overtime calculations
• Time rounding rules
• Attachment of Earnings administration fees

Accurate record keeping is equally important. If HMRC requests information during a review, employers must be able to provide clear records of pay, hours worked, deductions and calculations.

Tips and gratuities

For businesses that receive tips or service charges, it is important to remember that tips do not count towards National Minimum Wage pay.

Even where tronc arrangements are in place, employers must ensure that base pay alone meets the required minimum wage levels. This is particularly relevant in hospitality businesses where tips form a regular part of staff income.

Preparing for the April changes

With significant increases coming into force, reviewing payroll processes before April is essential.

A practical review might include:

• Updating minimum wage rates across all age bands and apprentice categories
• Checking uniform, equipment and other employment-related costs
• Reviewing apprentice progression and employee age changes
• Monitoring salary sacrifice arrangements
• Reviewing time recording systems and travel time rules
• Removing rounding practices that reduce recorded hours
• Reviewing payroll system settings and compliance controls
• Ensuring payroll records can be easily accessed if required

Taking the time to review these areas now can help businesses stay compliant and avoid unexpected issues later in the year.