For HR and payroll teams, National Minimum Wage compliance has long been viewed through a fairly narrow lens, check the pay rate, check the hours, ensure the numbers add up. But a growing body of HMRC enforcement activity is revealing a more complex picture, one in which salaried employees across all sectors and pay grades are quietly accumulating unpaid working hours that employers have neither tracked nor compensated.

This isn’t a fringe issue, it is, according to HMRC, one of the most common causes of NMW underpayments and the regulator has recently signalled its intent to focus enforcement efforts specifically on the Salaried Work Excess Annual Time (SWEAT) calculation. If that acronym isn’t already on your compliance radar, it needs to be.

The Post-Pandemic Overhang: How ’Always-On’ Culture Creates Compliance Risk

The shift to flexible and hybrid working has fundamentally changed how employees relate to their working hours. For many, the commute disappeared and the kitchen table became the office, but so did the sofa at 9pm, and the phone call on a Sunday morning. Inbox checks turned into email trails, a quick task before bed stretched into an hour of unpaid effort.

These behaviours have become deeply embedded. Retail workers complete health and safety training modules from home in the evenings. Managers review rotas and respond to colleague messages during weekends. Senior professionals spend additional time preparing for client meetings that falls entirely outside their contracted hours. None of it feels like ’overtime’ in the traditional sense but under NMW legislation, it all counts as working time.

For HR professionals, the challenge is that much of this activity is invisible. It doesn’t appear on timesheets. It isn’t logged in scheduling systems. It has simply become the way things are done, a cultural norm rather than a documented pattern. And that invisibility, from a compliance perspective, is precisely the problem.

Understanding the SWEAT Calculation

The Salaried Work Excess Annual Time (SWEAT) calculation is the mechanism by which employers must assess whether salaried employees have worked beyond their annual contracted hours and if so, whether those excess hours have been adequately remunerated.

The principle is straightforward, but the implications are easily missed. If a salaried worker completes their full annual contracted hours before the end of their contractual year, say, during Month 11, then every hour worked in Month 12 is classified as an excess hours. The employee’s regular monthly salary must then cover not only their standard contracted hours for that month, but also every excess hour worked. All of those excess hours must be paid at least, the applicable NMW or NLW rate.

It is a requirement that applies regardless of how well-paid the employee is in headline terms. A salaried manager earning comfortably above minimum wage can still generate a SWEAT liability if their actual total annual hours, when properly accounted for, exceed their contractual entitlement and the resulting effective hourly rate falls below the NMW threshold.

HMRC has recognised the widespread difficulty businesses face in performing this calculation accurately and consistently. It has recently launched a dedicated series of webinars focused solely on the salaried work excess annual time calculation, a clear signal that compliance in this area is under the spotlight. Specialist tools such as those offered by Fair Work Solutions are now helping payroll teams run these calculations with the rigour and audit trail that HMRC expects, removing the manual complexity that has historically made the process error-prone.

What HMRC Looks for in an Investigation

HR professionals should be clear-eyed about how an HMRC NMW investigation actually works in practice. The process goes well beyond a review of payroll records.

If a business cannot produce evidence of the actual hours worked by its employees, HMRC will construct that evidence itself. Investigators interview current and former employees to build a detailed account of real working patterns. They can request system data, including laptop login and logout times, to identify out-of-hours activity. Calendar records, communication logs and project management data can all be scrutinised.

The digital habits of working leave extensive digital footprints. Routine late-evening logins, regular weekend system access, patterns of activity outside contracted hours, these all become evidence in an investigation. For businesses that have allowed informal overtime to become culturally normalised, that evidence can be both extensive and damaging.

The most effective defence against this risk is not retrospective damage limitation, it is proactive record-keeping and a robust annual excess hours review process. Platforms such as Fair Work Solutions are specifically designed to provide exactly this, a structured, defensible audit trail that demonstrates ongoing compliance governance.

It’s Not Just a Low-Wage Sector Issue

One of the most important mindset shifts for HR and payroll professionals is to stop treating NMW compliance as a concern only for businesses operating close to the minimum wage floor. HMRC’s enforcement data increasingly shows that salaried employees in higher-earning roles are generating NMW exposure for their employers, precisely because nobody thought to check.

The arithmetic is worth understanding clearly. An employee on a £65,000 annual salary with salary sacrifice pension and EV (again via salary sacrifice) working an average of 45 hours per week against a 40 hour contracted week will see their effective hourly rate fall considerably below their headline figure when excess hours are factored in. Depending on their age and the applicable NMW rate, this could constitute an underpayment, not because the employer set out to underpay, but because the hours were never tracked and the calculation was never run.

The ’hidden hours’ problem does not discriminate by sector, seniority or pay grade. Any business with salaried employees in an always-on culture is exposed.

What Good Practice Looks Like

For HR and payroll professionals looking to strengthen their position on NMW compliance for salaried workers, the following represent the pillars of a defensible approach:

•    Run the SWEAT calculation for each salaried worker, without exception. This is a legal requirement for salaried workers, not a discretionary audit exercise. Every contractual year should be closed with a formal excess hours review. 

•    Record actual hours, not just contracted hours. Payroll records showing contracted hours are insufficient for NMW purposes. Systems must capture time actually worked and be capable of producing that data in a format HMRC can interrogate.

•    Address the cultural dimension. Compliance is not just a payroll function, it is also an HR and management challenge. If out-of-hours working has become an unspoken expectation, that needs to be addressed as a matter of policy, not just process.

•    Use purpose-built tools for complex calculations. The SWEAT calculation, alongside Time and Unmeasured work calculations, involves a level of complexity that makes manual processing both time-consuming and error-prone. Specialist platforms built specifically for NMW compliance, such as Fair Work Solutions, provide the calculation accuracy, governance transparency and documentation that modern compliance requires.

•    Ensure payroll and HR teams are aligned. NMW compliance for salaried workers sits at the intersection of HR policy and payroll calculation. Both teams must understand the rules, share the relevant data, and take joint ownership of the annual review process.

The Bottom Line

The normalisation of hidden overwork has created a genuine and growing NMW compliance risk for UK employers and HMRC’s renewed focus on the salaried work calculation suggests that scrutiny is only going to intensify.

For HR and payroll professionals, the message is clear, contracted hours and actual hours are not the same thing, and compliance depends on knowing the difference. The businesses best placed to demonstrate that they do are those that have invested in robust time-recording, annual excess hours reviews, and the kind of calculation governance that holds up under scrutiny.

The hidden hours problem is solvable, but only for those who acknowledge it exists.

Jeni Morris will be speaking live at the Reward and Payroll Summit! Don’t miss the chance to hear her insights in person, ask questions, and connect with fellow attendees. Click here to secure your spot.