Your Payroll May Be Wrong Even If You Updated It for the New NLW

If you updated your payroll for the new National Living Wage today, there's a good chance you used the wrong figure. The confirmed rate for workers aged 21 and over is £12.71 per hour — not £12.21. The 50p difference matters: at 40 hours a week, that's an underpayment of £1,040 per worker per year. And the Fair Work Agency, which launches on 7 April, will be checking wage records retrospectively.

This is not a technicality. Employers who updated their systems to £12.21 — the rate widely circulated as a draft — are underpaying from the moment April 1 began.

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What Actually Changed on 1 April 2026

Here are the confirmed National Minimum Wage rates from 1 April 2026, as published by the UK Government:

Worker Age	Previous Rate	Rate from 1 April 2026
21 and over (National Living Wage)	£11.44/hr	£12.71/hr
18 to 20	£8.60/hr	£10.85/hr
16 to 17	£6.40/hr	£8.00/hr
Apprentices	£6.40/hr	£7.55/hr

The headline rate — £12.71 for workers aged 21+ — is the figure that matters for most employers. If your payroll system, employment contracts, or HR software was pre-loaded with £12.21, your workers are underpaid today.

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Where Did £12.21 Come From?

The £12.21 figure circulated widely during the autumn 2025 consultation and pre-budget press coverage. Several payroll software providers pre-populated their April 2026 update fields with provisional figures based on media reports rather than the confirmed Government announcement.

The final confirmed rate was published on GOV.UK and by ACAS. But if your payroll team set up the April update in advance — which is good practice — they may have used the earlier estimate without checking against the final publication.

This is exactly the scenario the Fair Work Agency exists to catch.

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Why This Is More Serious Than It Sounds

HMRC has been clear about its enforcement approach. In its most recent enforcement round:

• 750 employers were fined for National Minimum Wage violations
• £4.2 million in fines were issued
• Employers were named publicly on the HMRC register

The penalty for underpayment is 200% of the total shortfall, capped at £20,000 per worker. For a hospitality business with 20 kitchen and front-of-house staff each working 40 hours a week, underpaying by 50p per hour amounts to £20,800 per year in arrears — before the penalty multiplier is applied.

From 7 April 2026, the Fair Work Agency takes over enforcement. Unlike HMRC, which investigated complaints reactively, the FWA is designed for proactive, unannounced inspections. A single inspector can now check wage records, holiday pay, sick pay, and employment contracts in one visit. Hospitality, retail, and care are their declared priority sectors.

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The Hidden Deduction Risk

Even if your headline rate is now correct, you may still be underpaying. HMRC calculates the effective hourly rate after the following deductions:

• Uniform and workwear costs charged to the employee
• Tool or equipment charges deducted from pay
• Accommodation provided below market rate (offset applies)
• Tips pooled through a tronc system incorrectly included in NMW calculation (tips do not count toward NMW)
• Unpaid time — pre-shift briefings, kit-up time, post-shift cleaning

If any of these apply to your workforce, your effective hourly rate may fall below £12.71 even after the headline pay rise.

💡 Not sure if your effective rate clears the new threshold? Use our free Impact Calculator to run the numbers for your workforce.

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What to Do Right Now

Step 1: Confirm the rate in your payroll system

Log into your payroll software today and check the NLW rate currently set for April 2026 runs. If it shows £12.21 or any figure below £12.71, raise it immediately and recalculate any April pay that has already been processed.

Step 2: Check every worker close to the new floor

Pull a report of all workers earning between £11.44 (old rate) and £12.71 (new rate). Anyone in that band needs an immediate rate adjustment. Anyone previously on exactly £12.21 is still 50p short.

Step 3: Review deductions that affect effective hourly pay

Check uniform policies, tool charging arrangements, and any other deductions that reduce net pay. If any worker's effective hourly rate drops below £12.71 after deductions, you are in breach.

Step 4: Correct the records before 7 April

The Fair Work Agency launches on 7 April. They will have access to PAYE records and can cross-reference payslips against the declared rate. Correcting the error before that date — and documenting the correction — significantly reduces enforcement risk.

Step 5: Put a monitoring system in place

This situation illustrates the core risk: businesses acting in good faith but using the wrong rate. Regulatory changes move faster than payroll update cycles, and the penalty is the same whether you intended to underpay or not.

💡 ComplianceAlert monitors NMW changes and sends you alerts when rates are confirmed — not when they're estimated. Try it free for 7 days at compliancealert.co.uk.

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The Fair Work Agency Angle

From 7 April 2026, the Fair Work Agency merges the enforcement functions of HMRC's NMW team, the Gangmasters and Labour Abuse Authority, and the Employment Agency Standards Inspectorate. One body. One inspector. Your entire employment compliance record in one visit.

The FWA has stated publicly that it will prioritise:

1. Hospitality — high proportion of minimum wage workers, frequent deduction issues
2. Retail — large workforce, high turnover, complex hours tracking
3. Social care — sleep-in pay disputes, zero-hours contracts, high deduction risk
4. Construction — labour-only subcontracting, CIS classification issues

If your business falls into any of these sectors, the probability of a proactive inspection in the FWA's first year is significantly higher than under the previous enforcement model.

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Key Takeaways

• The confirmed NLW rate from 1 April 2026 is £12.71/hr, not £12.21
• If you updated payroll to £12.21, your workers are underpaid today
• The underpayment penalty is 200% of arrears — up to £20,000 per worker
• The Fair Work Agency launches 7 April with proactive inspection powers
• Fix the rate today, correct any retroactive pay, and document it

Still unsure if your business is fully compliant? Take our free Compliance Score quiz — 20 questions, instant results. No sign-up required.

Every employer who underpaid today did not intend to. The fine is identical either way.

Don't find out you're wrong when the FWA inspector knocks. Find out now.

👉 Start your free 7-day trial → — no credit card required.

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