The National Living Wage has been £12.71 per hour for workers aged 21 and over since 1 April 2026, a 4.1% rise on the previous £12.21. Around 2.7 million workers were affected by the uplift. For umbrella companies, the rate itself is the easy part — breaches almost always arise from how pay is constructed around it, not from the headline figure.
How the National Living Wage Applies in Umbrella Payroll
An umbrella company is the employer. It must pay at least the applicable minimum rate for every hour of working time in each pay reference period, regardless of the assignment rate or whether the agency has settled its invoice.
The distinction that causes most difficulty is between the assignment rate and the worker’s gross pay. The assignment rate agreed between agency and umbrella is a contract value that includes employer’s National Insurance, the Apprenticeship Levy, employer pension contributions and holiday pay. It is not the worker’s wage and must not be presented to workers as though it were.
From that assignment rate, the umbrella deducts its employment costs before arriving at gross pay. What remains, divided by hours worked, must clear £12.71 for a worker aged 21 or over. Where an assignment rate is set too close to the minimum, there is no room for employment costs and the arithmetic fails before payroll is run.
Where Minimum Wage Breaches Actually Happen
HMRC’s naming rounds show the same causes repeating across sectors. In umbrella payroll, the recurring risks are:
- Unpaid working time. Travel between sites, mandatory briefings, security screening and handover periods count as working time. If the timesheet captures only billable hours, the effective rate can fall below the minimum.
- Deductions for the employer’s benefit. Charges for uniform, equipment, DBS checks or training reduce pay for minimum wage purposes. A margin deducted in a way that drags gross pay below the rate is a breach.
- Holiday pay mishandling. Rolled-up holiday pay must be clearly identified and must not be used to top pay up to the minimum rate in the period it is paid.
- Salary sacrifice arrangements. Sacrifice cannot reduce pay below the National Living Wage. Pension or benefit schemes applied without a floor check will produce breaches at scale.
- Birthday uprating failures. A worker turning 21 moves from £10.85 to £12.71 from the start of the next pay reference period. Payrolls that do not track age bands automatically will miss this.
These are systems failures rather than pricing decisions, and they are found the same way every time: by sampling payslips against timesheets. That is what an assessment does, and it is what an enforcement visit does.
What Workers Should Be Able to See
Every umbrella worker should receive a reconciliation showing the assignment rate received, each employment cost deducted, gross pay, statutory deductions and net pay. If a worker cannot trace the journey from the rate quoted at the point of engagement to the figure in their bank account, the arrangement is not transparent enough, whatever its technical compliance.
Who Enforces the Minimum Wage
National Minimum Wage and National Living Wage enforcement sits with HMRC. Its NMW teams investigate complaints and carry out targeted enforcement, issuing notices of underpayment covering arrears at current rates plus a penalty of up to 200% of the underpayment, capped at £20,000 per worker. Employers can also be named publicly.
The Employment Rights Act 2025 provides for the Fair Work Agency to bring state employment enforcement functions together over time, including those currently exercised by the Employment Agency Standards Inspectorate and the Gangmasters and Labour Abuse Authority. Minimum wage enforcement has not transferred. Until it does, umbrella companies should expect NMW enquiries to come from HMRC and should keep records on that basis.
Separately, joint and several liability for PAYE and National Insurance on payments to umbrella workers took effect on 6 April 2026. HMRC can pursue the agency or, where there is no agency, the end client for the full amount of unpaid PAYE and NICs. That changes the commercial stakes of a payroll defect: an underpayment problem in an umbrella’s systems is no longer contained within that umbrella.
FCSA’s Position
Paying the correct rate is the floor, not the standard. Minimum wage compliance is not a matter of interpretation — a worker who receives less than £12.71 an hour after deductions has been underpaid, whatever the payslip calls the shortfall.
The firms that get into difficulty are rarely those that set out to underpay. They are those running payroll on systems that do not check age bands, do not flag deductions against the minimum, and do not reconcile timesheets to working time.
FCSA Accredited Members are assessed annually against the FCSA Codes of Compliance by independent assessors, with payroll testing part of that process. That is how agencies and end clients can satisfy themselves that minimum wage obligations are being met in practice rather than asserted in a policy document. Agencies reviewing their preferred supplier lists should start with the FCSA Members register, and firms seeking accreditation can review the requirements for FCSA Membership.
Sources
- GOV.UK, National Minimum Wage and National Living Wage rates
- GOV.UK, Calculating the minimum wage
- GOV.UK, National Minimum Wage law: enforcement
- FCSA, Umbrella Deductions: NMW £12.71 Under Scrutiny in 2026
- Employment Rights Act 2025, legislation.gov.uk
- Lewis Silkin, Umbrella company tax compliance changes effective 6 April 2026
