The new National Living Wage of £12.71 took effect on 1 April 2026. Six days later, on 7 April, the Fair Work Agency officially launched with 550 inspectors, unannounced inspection powers, and the ability to review six years of payroll records. If your last NMW check was a quick rate comparison, that approach no longer covers the risk.
TL;DR: The 21+ National Living Wage rose to £12.71 on 1 April 2026 (a 4.1% rise). Rates for 18-20s jumped 8.5% to £10.85. The Fair Work Agency now consolidates HMRC's NMW team, the GLAA, and other enforcement bodies under a single regulator with broader powers. Most underpayment cases come from deductions, salary sacrifice, or unpaid working time - not the headline rate.
What Are the New Minimum Wage Rates from April 2026?
The rates that apply from 1 April 2026 are:
| Age band | New rate | Increase |
|---|---|---|
| 21 and over (NLW) | £12.71 | +4.1% |
| 18 to 20 | £10.85 | +8.5% |
| 16 to 17 | £8.00 | +6.0% |
| Apprentice (under 19, or 19+ in year 1) | £8.00 | +6.0% |
| Accommodation offset | £11.10/day (£77.70/week) | +4.1% |
The 18-20 rate is rising faster than the headline NLW as part of the Low Pay Commission's plan to eventually align it with the adult rate. Baroness Philippa Stroud, Chair of the Commission, said the recommendations balanced "the need to protect the economy and labour market, whilst providing a real-terms increase" (gov.uk, 2026).
In our experience, the biggest budget hit for small employers is not the NLW itself - it is the 8.5% jump in the 18-20 band combined with employer NICs and pension contributions on top. For SMEs already running tight margins, this is a cash flow planning issue as much as a payroll one.
When Do the New Rates Actually Apply?
The rates apply to the first pay reference period that starts on or after 1 April 2026. This is not the same as the start of the tax year on 6 April.
If you run monthly payroll and your pay period runs from the 1st to the end of the month, the April pay run uses the new rates from day one. If your pay period straddles 1 April (for example, 25 March to 24 April), only the part falling on or after 1 April uses the new rates. Weekly payrolls that started before 1 April keep the old rates for that whole week.
Getting the pay reference period wrong is one of the most common reasons employers end up in HMRC's arrears statistics. The fix is mechanical: check your payroll software's effective-date settings before the first April run.
What Is the Fair Work Agency and Why Should Employers Pay Attention?
The Fair Work Agency (FWA) is a new single enforcement body for UK employment rights, established under the Employment Rights Act 2025. It launched on 7 April 2026 under Chair Matthew Taylor and consolidates four existing bodies: HMRC's National Minimum Wage team, the Gangmasters and Labour Abuse Authority, the Employment Agency Standards Inspectorate, and the Director of Labour Market Enforcement (Make UK, 2026).
During 2026/27 HMRC continues to deliver NMW enforcement under contract to the FWA, with the full transfer of minimum wage functions due in April 2027. What changes immediately is the breadth of powers. The FWA can:
- Conduct proactive, unannounced workplace inspections without a worker complaint
- Issue underpayment notices and recover its enforcement costs from employers
- Review payroll records going back six years
- Bring tribunal claims on behalf of workers
- Apply penalties of up to 200% of the underpayment, capped at £20,000 per worker
This is materially more than HMRC's prior NMW remit. The 550 inspectors give the FWA capacity HMRC alone never had.
Where Do Employers Most Often Underpay?
The headline rate is rarely where employers get caught. In its 2024/25 enforcement report, HMRC opened 5,200 new NMW cases, closed 4,800, and issued 750 penalties totalling £4.2m (HMRC NMW enforcement report, 2026). Most underpayments came from three patterns:
Deductions that take pay below the minimum. Uniforms, tools, till shortages, security deposits, and transport costs are all employer-related deductions. If they reduce an employee's effective hourly rate below £12.71, you owe arrears - even if the worker agreed to them in writing.
Unpaid working time. Pre-shift briefings, training sessions, handover periods, mandatory online learning, and closing duties all count as working time. A 30-minute unpaid handover three times a week strips around £2.30/hour off the headline rate for a part-time worker.
Salary sacrifice schemes. Pension salary sacrifice, cycle-to-work, and electric vehicle schemes can pull someone below NMW because they reduce gross pay. HMRC treats this as an underpayment of the minimum wage, full stop. Workers near the NLW threshold cannot participate without your scheme failing the test.
One question clients always ask is whether tips count towards NMW pay. They do not, even when they are processed through payroll. That has been the rule since 2009 and the FWA is expected to keep enforcing it tightly.
How Does the Apprentice Rate Work?
The £8.00 apprentice rate applies to apprentices under 19, or apprentices aged 19 or over who are still in the first year of their apprenticeship. The day after either condition fails, the worker moves to the age-related rate.
What we see most often is employers leaving an apprentice on £8.00 after they turn 19 mid-programme, or after the first apprenticeship year ends. A 21-year-old on month 13 of an apprenticeship should be on £12.71, not £8.00. The gap is £4.71 per hour, which on a 37.5-hour week is £176.63 every week of arrears.
The fix is to set a calendar reminder against each apprentice for the earlier of their 19th birthday or apprenticeship year-one anniversary.
What Are the Penalties for Underpayment?
Penalties under both HMRC and the FWA are calculated as up to 200% of the total arrears owed, capped at £20,000 per worker. The minimum penalty floor is £100 per notice. Employers who pay arrears within 14 days of the notice get a 50% discount on the penalty.
Beyond the financial cost, named-and-shamed employers appear on the Department for Business and Trade's public list, which is widely reported in trade press and regional news. The reputational cost often exceeds the penalty for small employers with local customer bases (Davidson Morris, 2026).
When we reviewed a client's payroll last year, an unrecorded 15-minute closing duty across 12 workers had quietly generated £8,400 of underpayment over three years. The arrears bill exceeded the penalty - that is normal, not exceptional.
What Should Employers Do Right Now?
Five practical actions, in order:
- Re-run April payroll against the new rates. Confirm every worker is on the correct band, including anyone who hit a birthday in April.
- Audit deductions. List every employer-related deduction (uniform, kit, training, accommodation, transport) and check it does not push anyone below their band.
- Map unpaid time. Pre-shift, post-shift, training, briefings. If it is working time, it must be paid.
- Stress-test salary sacrifice for low-paid workers. Anyone within 10% of their NMW band should not be on sacrifice without a fresh calculation.
- Set apprentice rate-change reminders. 19th birthday or year-one anniversary, whichever comes first.
If you run a limited company and most of your team are on or near the NLW band, the rise also affects your Corporation Tax position through the deductible-cost line. Our advisory services cover both ends of that calculation.
Frequently Asked Questions
Does the National Living Wage apply to all workers aged 21 and over?
Yes. The NLW applies to all workers aged 21 or over from 1 April 2024 onwards (the age threshold dropped from 23 to 21 that year). There is no exception for new starters, probation periods, or part-time workers.
Are zero-hours and casual workers entitled to the NLW?
Yes. The NLW applies to all hours actually worked, regardless of contract type. Zero-hours, casual, agency, and seasonal workers must all be paid at least the rate for their age band for every hour worked, including training and travel between assignments.
What records do I need to keep?
Employers must keep records sufficient to show compliance with NMW law for six years. This includes hours worked, gross pay, deductions, and any non-cash benefits like accommodation. The Fair Work Agency's six-year lookback means records from May 2020 onwards could still be reviewed.
Can I pay below the minimum wage during a training period?
No. Training time at the employer's premises or directed by the employer is working time and must be paid at the full rate. The only exception is voluntary training the employee chooses to attend outside required hours.
What happens if I disagree with an underpayment notice?
You have 28 days to appeal an underpayment notice to an employment tribunal. The appeal can challenge the calculation, the identification of the worker, or the legal basis for the deduction. Until 2027 the appeal route is the same as under HMRC enforcement.
If you want a second pair of eyes on your payroll setup before the Fair Work Agency turns up unannounced, get in touch. We work with UK SMEs across hospitality, retail, and professional services and can run an NMW audit covering rates, deductions, working time, and salary sacrifice before any of it becomes an arrears notice.