The United Kingdom (UK) National Minimum Wage (NMW) is the minimum pay per hour that almost all workers are entitled to receive, while the National Living Wage (NLW) is higher than the NMW and applies to workers aged 21 and over. Regardless of the size of the employer, they must pay the correct minimum wage.
As of April 1, 2025, the UK has implemented significant increases to its NMW and NLW. These changes are in line with recommendations made by the Low Pay Commission (LPC) last autumn and accepted by the government in the October 2024 Budget.
New Rates
Effective 1 April 2025, the NLW has risen by 6.7%, increasing from £11.44 to £12.21 per hour. This adjustment translates to an approximate annual increase of £1,400 for full-time employees.
Younger workers are also benefiting from wage increases:
- The NMW for employees aged 18 to 20 has increased from £8.60 to £10.00 per hour, representing a 16.3% increase.
- The NMW for employees aged 16 to 17 and apprentices now has a minimum wage of £7.55 per hour, an increase from £6.40, representing an 18% increase.
- The accommodation offset increased to £10.66 per hour, representing a 6.7% increase.
These increases coincide with other economic measures introduced in the recent budget, including a rise in employer National Insurance Contributions from 13.8% to 15% and a reduction in the threshold from £9,100 to £5,000. While these changes aim to bolster workers' earnings, some businesses have expressed concerns about the added financial burden.
Important Actions to Consider
Since 1 April fell on a Tuesday, it may mean that employees receive their NMW or NLW increases later. For instance, for a weekly payroll that runs from Sunday to Saturday (e.g., 30 March through 5 April), the new rates are effective from 6 April.
In addition, it is common to agree on salary sacrifice arrangements in the UK, and even if an employee consents to enter into an arrangement, they are unable to do so if the amount foregone in salary reduces their pay to under the NMW or NLW. Employers must put procedures, review processes, and controls in place to cap salary sacrifice deductions, and ensure the (minimum) NMW and NLW rates are maintained.
The updated rates for NMW and NLW, and likely specific configurations for salary sacrifice arrangements, should be implemented in payroll software. This requires close collaboration between the provider and customers to perform end-to-end testing, including payslip validations, to ensure compliance.
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Max van der Klis-Busink, MCIPP, RPP, is the Owner of Passion For Payroll and Vice President of Global Strategy on PayrollOrg’s Board of Directors.
