Understanding the National Minimum Wage (‘NMW’), alongside the National Living Wage (“NLW”), is essential for both employers and employees to ensure fair pay and compliance with employment legislation.
Both the NMW and NLW tend to increase in April each year, with this year being no exception. Understandably, this annual increase can have a big impact on a number of employers and can result in them needing to consider potential cost-cutting measures within the business to account for this change. Whilst this is not an easy thing to do, it is vital that employers stay ahead of the NMW and NLW increases and take the necessary action to adjust employee, worker or apprentice pay in accordance with this, as non-compliance can have serious repercussions.
This FAQ provides answers to some of the frequently asked questions currently on wage regulations to help employers stay compliant.
1. What is the difference between the National Minimum Wage and National Living Wage?
The NMW is the minimum payment that eligible employees and workers (i.e. those working of at least school leaving age) are legally entitled to receive, regardless of the size of the business, per hour they work.
The NLW is an enhanced payment that some employees are entitled to, this payment varies depending on location (London having a higher living wage to reflect the cost of living in this area). The NLW applies to those aged 21 or over and is designed to ensure fair pay is received taking into account external factors, such as the cost of living.
Therefore, in essence, despite the differing names, the NLW is essentially a NMW for those aged 21 or over.
2. What are the changes to the current wage regulations?
As part of the Labour’s proposals to ‘Make Work Pay’ policy, both the NMW and NLW will be rising from April 2025.
The table below sets out the current and new minimum rates:
|
|
21 years old and over |
18-20 years old |
Under 18 years old |
|
Current rate (as of April 2024) |
£11.44 |
£8.60 |
£6.40 |
|
New rate as of April 2025 |
£12.21 |
£10.00 |
£7.55 |
There is also a minimum apprentice rate which apprentices are entitled to receive, provided they are aged under 19, or aged 19 or over and in the first year of their apprenticeship. The apprentice rate reflects that of the under 18 category above.
The upcoming changes this April 2025 represent the largest increase for those aged 18 to 20 years old on record and indications coming from the government should put employers on notice that the adult NLW rate might well be extended to cover this age band in the future.
3. When do the wage changes take effect?
The increase comes into effect on 1st of April 2025 and employers are required to comply with the new wage rates from this date forward.
Employers who have any members of staff working night shifts should be aware that rates may change halfway through a shift and that wages should reflect this.
4. Why has the minimum wage been increased again?
Every year the low pay commission presents a recommended rate of NMW to the government. This considers circumstances such as inflation and increases to the cost of living across the previous year to ensure fair compensation for employees and workers year on year.
It also ensures employees and workers have income to spend which can support economic growth.
5. How will these wage changes affect businesses?
Ultimately, employers are responsible for ensuring compliance with the minimum wage requirements.
This will mean that employers should take steps to ensure they are prepared for the wage increases and factor in the additional hourly costs their business will incur as a result. In practice, this will mean checking which employees, workers and apprentices will be affected by the changes so that you can calculate their new wages accurately and begin paying them the new rates at the right time.
It is advisable that written communication is sent to employees, workers and apprentices affected by the wage increases, so they are aware these have taking place.
In the event that such changes pose problems for the financial stability of their business, which could be the case for certain employers, they will need to consider whether other action may be required to counter-act the financial burden these increases pose on the business.
6. What about employer National Insurance Contributions?
Changes are also due to come into force from 6th April 2025 in respect of employer National Insurance contributions. This will see a 1.2% rise, resulting in employers now paying a rate of 15% on employee’s earnings over £5,000.
Whilst these changes are separate to the NMW and NLW increases, given they are coming in a few days later, it is important for employers to consider the impact of this alongside the minimum wage increases as these changes coupled together could result in quite substantial additional costs for many employers.
7. What steps may employers need to consider if the wage increases cause financial difficulties?
In the event that employers feel like they may be unable to retain their current workforce at their current hours with the increases coming into force, options to reduce costs within the business will need to be considered.
Whilst there are a number of cost-cutting measures available that do not impact on existing employees (e.g. recruitment freezes or reducing overheads), which employers should look to explore, it may be that these are not viable for the business or, even if they are, do not provide sufficient cost savings. In this case, employers may need to consider other avenues, such as:
- Reducing hours of work – depending on the proposed reductions, this may amount to short-time working;
- Temporarily stopping work – for instance, lay-offs or unpaid leave being agreed.
In the event that the above measures cannot be agreed, or the business needs further cost savings, it may be that the employer needs to consider potential redundancies and undertake a redundancy process (in absence of voluntary redundancy being offered and agreed). It is important that any such process is carried out in accordance with the legal requirements, as employers may otherwise face risk of Tribunal claims, such as unfair dismissal.
8. What happens if an employer does not comply?
Employers who fail to comply the new minimum wage requirements may face penalties, legal action, and reputational damage. If HMRC finds that an employer has not been paying its employees, workers and apprentices the correct minimum wage, they can take any of the following actions:
- issue a notice to pay money owed to employees, going back a maximum of 6 years;
- issue a fine of up to £20,000 and a minimum of £100 for each employee or worker affected, even if the underpayment is worth less;
- take legal action including criminal legal proceedings; and/or
- pass on the names of your businesses to the Department for Business and Trade (DBT) who may put them on a public list.
Employers can also be taken to an employment tribunal by their members of staff if they have not paid them the minimum wage in accordance with legal requirements. In this scenario, employees can claim up to 2 years underpayment.
If an eligible individual is dismissed for raising concerns over the failure of the employer to pay minimum wage, they could also raise a claim for unfair dismissal.
Employers should always pay the minimum wage in accordance with the wage requirements and faces potential legal, financial and reputational risks in failing to do so.
9. What will the wage increases look like in the future?
The government generally reviews the minimum wage requirements on an annual basis, with adjustments normally implemented in the April to closely align with the end of the tax year. With things such as inflation, economic conditions, and cost of living taken into account it is impossible to predict what future increases may look like however, businesses should prepare for increases to continue and make plans accordingly.
10. Where can I find more information?
Details of the NMW and NLW can be found directly on the .gov website or alternatively, the Employment Team at Wright Hassall can provide further guidance on employers duties or any other employment matters.
The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.
Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts. If you need such advice please contact a member of our professional staff.
The information published across our Knowledge Base is correct at the time of going to press.
