Azets, which has offices in Aberdeen, Ayr, Edinburgh, Glasgow, Inverness and Perth, has warned that many businesses are inadvertently breaching complex NMW regulations, exposing themselves to severe financial penalties, backdated repayments, reputational damage and even criminal sanctions.

Azets’ note of caution comes just weeks after the latest NMW increases took effect in April 2026, raising the statutory hourly rates to £12.71 for workers aged 21 and over, £10.85 for 18-to-20-year-olds, and £8 for 16-to-17-year-olds and apprentices under 19 or in the first year of their apprenticeship.

Catriona Donald, Azets’ Edinburgh-based employment taxes partner, said it is often the fine detail of legislation that catches employers out, rather than deliberate attempts to underpay staff.

Ms Donald said: “Most employers are trying to comply with the regulations, but the rules are extremely detailed and technical. It’s often the seemingly minor issues around working time calculations, payroll deductions or employee expenses that create breaches.

“Many businesses have payroll systems set up correctly in principle, but they still need to focus on the detail of the regulations. The question HMRC will ask is whether the working hours figure is actually right and whether every aspect of pay has been considered correctly for minimum wage purposes.”

Ms Donald said employers often underestimate how easily a technical breach can occur.

She said: “We have seen examples where call centre workers were effectively underpaid because employers failed to count the time employees spent on site preparing for call lines to open. Even ten minutes a day can create an underpayment issue and this can become a significant exposure when multiplied across a workforce over several years.

“There are also complicated rules around deductions from pay slips. Voluntary arrangements, such as Christmas savings schemes, where contributions are deducted directly from net pay, can unexpectedly take you below the minimum wage threshold for HMRC purposes.

“Under current rules, employers found to have breached NMW legislation can be required to repay arrears going back six years, calculated at today’s higher NMW rates rather than the historic rates originally paid. Businesses can also face penalties of up to 200% of the arrears owed along with public naming. And any back pay can also trigger additional National Insurance contributions, income tax liabilities, pension contributions and interest charges.”

Currently, HMRC continues to investigate NMW complaints and enforce NMW legislation on behalf of the FWA, which was set up in April 2026.

When fully operational, the FWA will oversee a broad range of employment rights, including holiday entitlement, unlawful deductions from pay, agency worker protections and gangmasters licensing. Enforcement officers can enter business premises, interview staff and inspect records, computers and payroll systems. The agency can also issue notices of underpayment requiring sums owed to be paid within 28 days.

Ms Donald advised that, along with NMW issues, holiday pay calculations have become a common area of difficulty, particularly in sectors involving irregular hours. The FWA will, for the first time, have powers to enforce holiday entitlement and pay on behalf of workers.

She said: “Holiday entitlement and pay is not always straightforward to calculate correctly and with the direction of travel from government to make it easier for workers to enforce their legal entitlements, businesses should act now to ensure robust compliance procedures are in place.

“We expect that the FWA will pursue unintended holiday pay breaches with the same approach as if the employer had set out to exploit deliberately. The regulations are complex, but the consequences of getting them wrong can be extremely expensive and damaging.

“Employers should review payroll processes, check working time calculations carefully and ensure they can demonstrate exactly how pay has been calculated. Record keeping is absolutely critical. Failure to keep adequate records can now be a criminal offence.

“If HMRC or the FWA challenge your processes, you need to be able to show clearly what you have done, why you have done it and how you concluded that workers were receiving their correct entitlements.

“Sorting all this now will help businesses avoid penalties, repayments and reputational risk as employment rights enforcement becomes increasingly robust.”