Employers should now prepare for up to 50% increases in National Minimum Wage rates

Since launching its New Deal for working people in 2022, the Labour party has been committed to ensuring the cost of living is considered when setting National Minimum Wage (NMW) rates and removing the current NMW age thresholds, so that all workers are entitled to the same rate. The NMW is the legal minimum rate of pay a worker in the UK is entitled to. For 18-20 year olds, it is currently £8.60p/hr, and £11.44 for those who are 21 and over. 

Employers can, if they wish, pay the Real Living Wage which is a voluntary minimum rate of pay that is benchmarked against the cost of living. Currently it is set at £13.15 in London and £12 across the rest of the UK for all workers aged 18 and over. 

If the NMW is set at similar rates to the current Real Living Wage for London, that could mean a whopping increase in wages of over 50% for workers aged 18-20 in April 2025 when the next NMW rate rise takes effect. Those aged 21 and over will see their pay packets rise by almost 15%. On top of this, there are the associated costs of employers’ National Insurance contributions, apprenticeship levy and employer pension contributions. 

Prior to the General Election, economists from HSBC warned that Labour’s manifesto commitment to ensuring the cost of living is considered when setting the NMW could increase unemployment.

The pace at which NMW rates may increase in April 2025 could also put some employers’ immediate recruitment plans on hold, particularly if they can’t match the additional wage costs with price increases. The slowdown in recruitment may also be exacerbated by the new limitations Labour are planning to place on casual work.

But it’s not just additional wage costs which employers will need to prepare for as a result of this increase. There will also be the additional costs of compliance. As NMW rates increase, the proportion of the workforce paid at that level rises too – effectively a salary of c.£27,000 could be the minimum an 18 year old working 40 hours a week is entitled to. 

NMW is a complex piece of legislation, with various technical reasons why employers find themselves breaching it. With HMRC proactively enforcing NMW compliance and Labour committing to increasing its funding and setting up a new single enforcement body for workers’ rights, more employers will need to commit resource to compliance to ensure they don’t fall foul of the rules and end up with a fine or being publicly named and shamed for failing to pay NMW.