National minimum wage increases for 1 April 2025. What are the changes and how can you prepare?
What are the changes to the national minimum wage?
The new Employment Rights Bill has been unveiled this week on 10 October 2024, bringing with it a new set of changes and challenges for employers, which we set out in our overview article. Additional proposed changes were confirmed on the same day under the Labour Government’s published policy plan ‘Next Steps to Make Work Pay’, which included significant changes to the national minimum wage (explained below).
The national minimum wage rates were already set to increase in 2025. The rates are usually determined by the Low Pay Commission each year in October for implementation the following April.
So, what is new for the National Minimum wage?
Following the largest cash increase we have seen to the national minimum wage (NMW) in 2024, the rate for adults is set to increase from 1 April 2025 to between £11.82 and £12.39 to reflect the cost of living. This was the revised range estimated by the Low Pay commission published on 5 September. We will confirm the actual rates of the national minimum wage when this information is available, which is expected to be by the end of October 2024.
The government asked the Low Pay Commission to review its wage setting process in order to ensure that the new rates reflect the cost of living, which is in line with Labour’s policy objectives in its ‘Plan to Make Work Pay’.
At the same time, the government also wants to make the rate of NMW the same for all adults, regardless of age, therefore narrowing the gap between the national minimum wage and the national living wage for 18-20 year olds. It has described such age bands as ‘discriminatory’. The band currently allows employers to pay a lower rate to adults under the age of 21. The removal of this will especially impact the hospitality, retail and leisure sectors where under 21’s are often employed.
How can you prepare?
To prepare for the upcoming rise, employers can review financial forecasting and budgets to accommodate the higher wages. Employers can also focus on optimising their workforce through training and performance management as well as streamlining operations to reduce costs.
The increase in the national minimum wage could potentially have positive effects on businesses, there may be a boost to consumer spending with those lower wage workers having more disposable income. This increase could also benefit morale and well-being in the some workplaces..
Is there anything else to note?
Employers will be aware that staff paid above the NMW may expect a corresponding increase. Not every employer will wish or be able to implement this. It’s worth considering non-cash benefits as employees may be interested in what else you can offer them, which can sometimes be tax efficient for you or them. For example, increased pension contributions or free meals. More employers are offering the chance to buy extra holiday and Employee Assistance Programmes with access to counselling on a broad range of issues.
Another factor to keep in mind is that when reviewing salary structures and benefits packages, any salary sacrifices schemes in operation could be at risk if such schemes reduce salaries below and therefore in breach of the National Minimum Wage rates.
If the changes to the National Minimum (NMW) and National Living Wage (NLW) rates impact your business and you require support with this please contact our Employment team.