On 3 September 2026, the Government named nearly 660 employers for failing to pay workers the National Minimum Wage, with around £4 million repaid to approximately 27,000 employees.
For SME employers, the important message is that minimum wage compliance is not always as straightforward as checking the hourly rate shown on the payroll.
A business may genuinely intend to pay its staff correctly and still fall foul of the rules because of deductions, working time, salary arrangements or incorrect records.
Minimum Wage Errors Are Not Just About the Hourly Rate
Most employers know that workers must receive at least the applicable National Minimum Wage or National Living Wage rate. However, compliance is based on the employee’s pay for minimum-wage purposes compared with the hours that count as working time. That means problems can arise even where the basic hourly rate appears correct.
Common areas worth checking include:
- deductions from wages;
- payments made by employees for uniforms or required work equipment;
- unpaid working time before or after a shift;
- training or meetings that should count as working time;
- salaried staff whose actual hours increase;
- birthdays moving workers into a different minimum-wage age band; and
- incomplete or inaccurate records.
For an owner-managed business, these details can easily be overlooked where payroll processes have been operating in the same way for several years.
Do Salaried Employees Need Reviewing Too?
Yes.
Minimum Wage legislation does not apply only to employees paid an obvious hourly rate. A salaried worker can potentially fall below the minimum wage if the hours they actually work are significantly greater than those assumed when their salary was calculated.
This can be particularly relevant where employees regularly work additional hours, arrive early, stay late or undertake required tasks outside their contracted working day.
Businesses should therefore consider whether the reality of the working arrangement matches the payroll calculation.
Be Careful With Deductions
Some deductions or expenses can reduce the pay counted for minimum-wage purposes.
For example, requiring an employee to pay for particular items connected with their employment can create an issue even where their gross hourly pay appears comfortably above the statutory rate.
The details matter, so employers should avoid assuming that any deduction agreed with an employee automatically has no minimum-wage consequence. Where there is uncertainty, the position should be checked.
Good Time Records Matter
One of the clearest lessons for SMEs is the importance of accurate working-time records.
If the business cannot establish how many hours an employee actually worked, demonstrating compliance becomes considerably more difficult.
Employers should consider how they record:
- start and finish times;
- overtime;
- compulsory training;
- travel that may count as working time;
- breaks; and
- changes to contracted hours.
The Government’s wider employment-law reforms have also increased the focus on record keeping and enforcement. The new Fair Work Agency forms part of that changing enforcement environment.
Payroll Software Does Not Remove Employer Responsibility
Payroll software is essential, but it can only calculate correctly using the information it has been given.
It may know an employee’s stated hourly rate and date of birth, but it may not know that:
- the employee regularly works an extra 20 minutes after closing;
- money is being deducted for clothing;
- unpaid training takes place outside normal hours; or
- actual working patterns have changed.
This is why payroll compliance should involve communication between the person processing payroll and the person managing employees.
For businesses outsourcing payroll, the employer still needs to provide accurate information about what is happening in the workplace.
What Should SME Employers Review?
A sensible minimum-wage check does not need to become a major project.
Start with:
- Current hourly and salaried rates — particularly employees close to the statutory minimum.
- Actual hours worked — not simply contracted hours.
- Payroll deductions — including anything connected with employment.
- Age changes — ensure employees move onto the correct rate when required.
- Training and additional working time — check whether unpaid activity should count.
- Records — make sure the business can demonstrate how pay and working hours have been calculated.
Businesses employing only a few people should not assume they are too small for this to matter. In smaller organisations, informal working arrangements can sometimes make these issues easier to overlook.
Our view
Business owners do need to stop thinking this is really just about wage increases, instead they need to take time to consider every area of an employee’s day, and adjustments to their wages at their request or in relation to business processes.
Their payroll providers are not running there businesses. They are often unaware of deductions made from the employee’s net wage after the payroll calculations are complete. Those employees closest to the minimum wage are those that require the closest attention, a small change can have a huge impact. Discuss any deductions with your payroll provider before making deductions from net wage calculations, also remember seemingly minor deductions or additional working time can create unexpected problems
About this article
Written by: We Are Pi Chartered Certified Accountants
Reviewed by: Angelique Wright FCCA
Last reviewed: 7 September 2026
Sources and further guidance: GOV.UK guidance on the National Minimum Wage and National Living Wage, minimum-wage enforcement and current employment-law changes.
About We Are Pi
We Are Pi is a Buckinghamshire-based firm of Chartered Certified Accountants supporting owner-managed businesses, company directors and individuals with accounting, tax, compliance and business advisory services.
Important information: This article is intended for general information only and should not be treated as tax, accounting, employment-law or other professional advice specific to your circumstances. Employment and payroll requirements depend upon individual circumstances, and legislation, rates and guidance can change.
Would you like to check that your payroll processes are keeping pace with employment changes?
We Are Pi can help review payroll information, pay structures and the interaction between payroll and wider business compliance, helping to identify areas that may need further review or specialist employment advice.
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