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 was unveiled by the government 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 a significant 10% increase to the National Minimum Wage (NMW) in 2024, it is set to be increased by a further 6.7% from 1 April 2025 to £12.21 for those 21 and over to reflect the cost of living. This rate was confirmed by the Low Pay commission on 29 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’. The LPC have taken into account the cost of living, including reviewing expected trends in inflation up to March 2026 to come to the new confirmed rates.
As part of the government’s plan to make the rate of the National Minimum Wage the same for all adults regardless of age, the gap between the over 21 years of age rate of the National Minimum Wage and the rate for those between 18-20 years old has been narrowed, in anticipation of the elimination of the lower rate of National Minimum Wage for 18-20 year olds in the future. The prospect of the removal of this lower age related rate of pay is likely to have the most notable impact in the hospitality, retail and leisure sectors where under those under the age of 21 are frequently employed.
The rate for 18-20 year olds has been confirmed in this press release to be £10.00 per hour – an increase of 16.3% from the current rate of £8.60.
How can you prepare?
To prepare for the upcoming rise, employers should review their 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.