National Minimum Wage rates set to rise again in April

Guidance for employers on the implications of the new rates.

On 29 October 2024, the Government announced that the Low Pay Commission’s recommended rates for the National Living Wage (“NLW”) and National Minimum Wage (“NMW”) had been accepted in full. 

Employers need to take note of the new NLW and NMW rates which will take effect from 1 April 2025.

Why another rise and how is this calculated?

NLW/NMW rates usually increase in April each year.

Employers may have hoped for a small increase in minimum wage rates this year after the significant rise in rates last year.  The rise in NLW in April 2024 was particularly significant, from £10.42 to £11.44, which represented a 9.8% increase.  At the same time, NLW applied for the first time to workers 21 and over, instead of those 23 and over.

However Labour has followed through on its manifesto commitments to make sure the minimum wage is a “genuine living wage” and to change the remit of the Low Pay Commission (LPC) for the first time so that it accounts for the cost of living in its recommendations.

As a result, the LPC’s NLW rate recommendation for 2025 took into account the cost of living and was set to ensure that the NLW does not drop below two-thirds of median earnings.

Whilst Baroness Philippa Stroud, Chair of the LPC has acknowledged that “employers have had to deal with the adult rate rising over 20 per cent in two years, and the challenges that has created alongside other pressures to their cost base”, this has not prevented a further significant increase in rates this year.

What are the new rates?

The new rates from 1 April 2025 are:

The LPC’s recommendation means that the NLW is expected to have the highest real value in the history of the UK’s minimum wage.

What do the increase(s) mean for employers?

When the new rates were announced, the NLW increase was three times the rate of inflation (1.7%) due to its new reflection of the cost of living.  

Organisations will need to ensure that they have adjusted their forecasts and budgets to account for the additional costs that they will incur from next month. These additional costs coupled with the rise in employer’s national insurance contributions and changes to the class 1 employer national insurance threshold will prove very challenging for some employers.

Whilst some employers may be able to pass on some of these increased costs to their customers, others may need to consider cost cutting measures, such as overtime reductions, automation and streamlining processes, recruitment freezes or redundancies.   

Whilst balancing the books will no doubt be most employers’ key focus in the coming months, other implications of the minimum wage increases should not be neglected. 

Employee relations

The significant increase in NMW over the last couple of years has meant that in some industries and sectors there is very little, if any, distinction between staff on minimum wage and those engaged in lower-level management roles, such as supervisors, whose slightly enhanced rates are designed to reward additional responsibility, skills and/or experience. 

Employers are therefore advised to review their pay structures to ensure that appropriate steps are taken to ensure all staff remain motivated and incentivised to perform at their best.

This may mean adjusting existing pay scales to maintain pay differentiation between more senior staff and those on NLW/NMW, or implementing new benefits or other non-financial ways of recognising and rewarding staff.

Compliance with minimum wage

Implementing the increases may seem relatively straightforward.  However, staff on hourly rates or salaries which are near to minimum wage should not be overlooked when implementing these increases, as their pay can inadvertently fall below the applicable minimum rates once contracted hours, unpaid overtime and deductions from wages are taken into account. 

Employers should therefore also review salaries regularly if they sit anywhere near NLW/NMW thresholds. 

In all cases, employers should keep records of the hours worked by, and the payments made to, all workers. As a minimum, this will involve the worker's pay and time records, but it may include more detailed information, setting out the various elements that make up workers’ total pay, together with any deductions for accommodation or absences and/or details of time spent on business travel.

These records must be kept for a minimum of six years from the end of the pay reference period following the period to which they relate.

Enforcement

HMRC currently has responsibility for enforcing breaches of minimum wage. This is initiated by either by a complaint being raised by worker(s) or third parties, or by risk profiling or targeted enforcement of a particular sector or employer that is believed to be non-compliant. 

HMRC also has Specialist Enforcement Teams to deal with large businesses and particularly complex NMW/NLW enforcement issues. 

Officers can conduct inspections at any time, without providing a reason, and can require employers to produce records and provide other information or access to determine entitlement to the minimum wage and the level of pay received by workers.

Enforcement action includes:

• notices of underpayment for payment of the arrears;

• civil penalties of 200% of the total underpayment, subject to a maximum of £20,000 per worker;

• "naming and shaming";

• recovery of underpayments through tribunals or civil courts; and/or

• criminal prosecution in serious or other appropriate cases.

"Naming and shaming"

The National Minimum Wage Naming Scheme (the “Scheme”) has been viewed as a key deterrent to employers breaking minimum wage law by publicly exposing organisations’ breaches to promoting their future compliance and to deter other businesses from underpaying minimum wage.

In its policy paper, National Minimum Wage: policy on enforcement, prosecutions and naming employers who break National Minimum Wage law - GOV.UK the previous government stated that it “recognises that some organisations are more likely to respond to the social and economic sanctions that may flow from details of their payment practices being made public, than from financial deterrents.” 

In February 2024, the names of 524 employers were published alongside an educational bulletin. This identified the main reasons for underpayment, which included deductions from wages for food, uniform and salary sacrifice schemes, unpaid working time and failure to pay the correct NMW rate.

Other issues

Employers should be aware of other potential legal routes available to staff whose pay is under minimum wage outside of HMRC enforcement action.  Former staff may be able to pursue breach of contract claims or unlawful deduction of wages claims.  Underpaid employees may be able to pursue unlawful deduction from wages claims and in some cases, claim constructive dismissal.

Future changes

The Employment Rights Bill contains provision for the establishment of a new Fair Work Agency which will have responsibility for enforcing "relevant labour market legislation". This will include taking over responsibility for enforcement of payment of the NLW/NMW from HMRC.  We will provide further guidance on proposals for the Fair Work Agency in a future article. 

If you would like to discuss any aspect of this article further, please contact our employment team on 0113 244 6100. 

You can also keep up to date by following Wrigleys Solicitors on LinkedIn.

The information in this article is necessarily of a general nature. The law stated is correct at the date (stated above) this article was first posted to our website.

Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors