HMRC minimum wage checks: what small employers should review now

HMRC has updated its employer factsheet on National Minimum Wage and National Living Wage checks, removing an earlier under-review notice from the main checks guidance. For small businesses, the update is a timely prompt to look again at payroll records, working time, deductions and the practical evidence needed if HMRC asks questions.

This is not only an issue for large employers with complex payroll teams. Minimum wage errors can happen in shops, cafes, salons, workshops, care businesses, trades, agencies and local service firms, especially where staff work variable hours, travel between jobs, use uniforms or equipment, or move between age bands and apprentice rates.

What has changed

The GOV.UK page for National Minimum Wage information for employers was last updated on 12 June 2026. The update note says HMRC has refreshed the factsheet about National Living Wage and National Minimum Wage checks, known as NMW FS1, and removed the notice that said it was under review.

The factsheet explains how HMRC carries out checks to make sure workers are paid at least the correct legal minimum. It says HMRC may choose employers for checking through its own research or after receiving a complaint that one or more workers may have been underpaid.

HMRC says it can ask employers for information, explanations and records that help it decide whether workers have been paid correctly. It may also visit business premises, ask about work patterns and pay arrangements, speak to the people responsible for payroll, and take copies of records where needed.

Why this matters for SMEs

Minimum wage compliance is often more detailed than checking the hourly rate on a payslip. Employers need to understand which hours count as working time, whether deductions or required costs reduce pay below the legal minimum, and whether different rates apply when a worker’s age or status changes.

That can be difficult for smaller firms because the same person may be handling rosters, payroll, HR admin and customer work. A mistake can sit unnoticed for months if no one regularly compares actual hours worked with the pay period, or if payroll relies on an assumed shift pattern rather than the hours people actually worked.

The financial risk is also bigger than the original shortfall. HMRC’s factsheet says that where workers have been underpaid, arrears are worked out using the current National Minimum Wage rate, not the historic rate that applied at the time of the underpayment. That means a small past error can become more expensive by the time it is corrected.

If HMRC finds underpayment, it can issue a notice of underpayment setting out what is owed to each worker and whether a penalty is due. In more serious cases, HMRC says labour market enforcement undertakings or orders may be used, and deliberate breaches can lead to prosecution. Employers may also be considered for public naming by the Department for Business and Trade.

Records to check first

A practical first step is to review whether the business can show how pay was calculated for each worker. That means keeping payroll records, contracts, shift records, timesheets, absence records, apprentice information and evidence of any deductions or reimbursements in a way that can be explained without relying on memory.

Owners should pay close attention to staff with variable hours, salaried-hours arrangements, unpaid time before or after shifts, trial shifts, sleep-in or travel time, and workers who must buy or maintain items for the job. Those are the areas where a headline hourly rate can look compliant while actual pay falls short once all relevant time and costs are counted.

It is also worth checking rate changes. Minimum wage rates change each April, and individual workers can become entitled to a higher rate when they move into a new age band or when their apprentice status changes. A simple calendar reminder can prevent a rate increase being missed during a busy trading period.

BritishSME has previously covered minimum wage enforcement after hundreds of employers were named for underpaying workers. The lesson remains the same: small firms should treat minimum wage compliance as an operating discipline, not a once-a-year payroll update. If you need a refresher, see our earlier guide on what UK small businesses should check before April.

What to do now

Small employers do not need to wait for an HMRC letter before reviewing their position. Pick a recent pay period and test a few real examples from start to finish: scheduled hours, actual hours, pay, deductions, reimbursements and any unpaid working time around the shift.

If payroll is outsourced, ask the provider what information they rely on and what assumptions they make. If managers set rotas locally, make sure payroll receives changes quickly. If staff buy items needed for work, check whether the business reimburses them and whether any cost could reduce pay below the minimum.

Where there is uncertainty, take proper advice before a small issue becomes a larger arrears problem. HMRC points employers towards GOV.UK guidance, HMRC learning and webinars, and Acas for confidential workplace advice. The important thing is to make the records and the working practice match, because HMRC checks are built around evidence.