As announced in the Autumn Budget, the national minimum wage (NMW) and the national living wage (NLW) are set to increase from April 2025.
The hourly rate will depend on the worker’s age and whether they are an apprentice. That said, the new NLW for workers aged 21 and over will increase from £11.44/hour to £12.21/hour – an increase of 6.7%. That means the new annual minimum wage for someone working 37.5 hours per week will be approximately £23,800.
National Minimum Wage To Increase: A Guide For Employers
Employers will need to figure out how they will fund the increase in NMW rates and understand the impact on their wider pay structures. In this article, we’ll explain everything you need to know about these changes.
How Will The Changes Impact Employees?
The NLW applies to workers aged 21 and over, while workers of school-leaving age are entitled to the NMW. The increase for 18–20-year-olds is the largest on record (16%) and is the first step towards a single rate for all adults.
These changes will result in higher pay for low-wage workers, potentially boosting financial stability and job satisfaction. However, recent increases to the NMW have created a ‘bunching’ effect at the low end of many employers’ pay structures, and lower pay bands have become harder to differentiate.
| Age Of Worker | Hourly Rate From 1 April 2025 | Hourly Rate From 1 April 2024 |
|---|---|---|
| 21 and over (NLW) | £12.21 | £11.44 |
| 18 to 20 (NMW) | £10.00 | £8.60 |
| Under 18 | £7.55 | £6.40 |
| Apprentice | £7.55 | £6.40 |
What Should Employers Look Out For?
Many employers breach the NMW rules inadvertently by making certain deductions from workers that reduce their pay for NMW purposes. Where such deductions take an employee’s pay below the NMW, employers must ensure that the worker is not underpaid.
Salary sacrifice schemes are a common cause of underpayment. Even if the employee’s hourly rate is above the NMW, if the reduced contractual pay takes it below the NMW, the worker will be underpaid. The law surrounding NMW can be very complex, so we always recommend consulting with an expert like our accountants at Digital Tax Matters.
What Should Employers Do?
If you operate salary sacrifice schemes, you need to check that the reduced amount does not take workers’ pay below NMW for all time worked in every pay reference period. We can help you with this. Additionally, we recommend a proactive approach as further changes to the NMW are highly likely.
The Government has made clear that it intends to close the gap between the 18–20-year-old rate and the main NLW rate to create a single NLW rate that applies to all adults other than apprentices. Our team at Digital Tax Matters can help your business stay on top of these changes and avoid falling foul of NMW requirements.
Navigate These Changes With Digital Tax Matters
The upcoming increases to the NMW and NLW present both challenges and opportunities for employers. It’s crucial for businesses to carefully assess their pay structures to ensure compliance and avoid inadvertent breaches of NMW regulations. By proactively addressing potential issues, particularly those related to salary sacrifice schemes, employers can not only meet legal requirements but also enhance employee satisfaction and retention through fair compensation. For help in navigating these changes, get in touch with our team at Digital Tax Matters.