The National Living Wage (NLW) will rise from 1 April 2025 to £12.21 to reflect the cost of living under Labour's Plan to Make Work Pay. The rise is three times the current rate of inflation (1.7%) as employers face extra costs under the Autumn Budget.
The 6.7% increase in the minimum wage is much higher than the rate of inflation due to the government changing the rules so that wages reflect the cost of living.
The National Minimum Wage (NMW) for 18 to 20-year-olds will also rise from £8.60 to £10.00 an hour – the largest increase in the rate on record.
The government says this is the first step towards aligning the National Minimum Wage and National Living Wage to create a single adult wage rate.
NMW Rate | Inc. (£) | % Inc. | |
---|---|---|---|
National Living Wage (21 and over) | £12.21 | £0.77 | 6.7 |
18-20 Year Old Rate | £10.00 | £1.40 | 16.3 |
16-17 Year Old Rate | £7.55 | £1.15 | 18.0 |
Apprentice Rate | £7.55 | £1.15 | 18.0 |
Accommodation Offset | £10.66 | £0.67 | 6.7 |
During the Budget, the Chancellor confirmed that Employer National Insurance will increase to 15%. On top of the changes to national living wage, this will increase the cost of an employee on national living wage (working 35 hours per week) to just under £2,270 per employee from April 2025.
The change to the NMW is part of the government's wider agenda to reform workplace rights, as made clear in its pre-election manifesto. Some of its original proposals were watered down following concerns voiced by business groups.
On 24 May 2024, the Labour party renamed its New Deal for Working People to Make Work Pay in order to reassure businesses, and promised a full consultation before enacting legislation.
It confirmed various policies, including removing current trade union legislation, a reduction in government outsourcing, and an end to hire and re-fire (unless bankruptcy would otherwise result), as well as “day one rights” on unfair dismissal, parental leave and sick pay (all subject to an employer's probationary periods and other possible exemptions yet to be made clear).
See our article: New employment rules to impact employers
The impact of frozen tax allowances means that those on the minimum wage will not feel the full benefit.
Someone, say, aged 21 or older and working 35 hours a week on the current £11.44 NMW will have an annual salary of at least £20,820. But with personal tax allowances remaining frozen at £12,570, the effect of the new rates from April 2025 increases the amount that is taxed on the worker (fiscal drag).
We are here to support employers through any potential upcoming changes. If you have any concerns or questions on the above, please contact our Employer Solutions team or your usual Bishop Fleming contact.