The Autumn Budget 2025 brought significant changes to the National Minimum Wage (NMW) and National Living Wage (NLW), with increases set to take effect from April 2026.
The New Rates
- National Living Wage (21+): Rising by 4.1% to £12.71/hour.
- National Minimum Wage (18–20): Increasing by 8.5% to £10.85/hour.
Employment Law Implications
Employers must ensure compliance with the National Minimum Wage Act 1998 and related regulations. Key obligations include:
- Pay Adjustments: All employees must be paid at least the new statutory minimum from April 2026. Failure to comply can result in HMRC enforcement, penalties, and reputational damage.
- Contracts of Employment: Employers should review contracts to ensure pay clauses reflect the new rates. While contracts may not need rewriting, payroll systems must be updated.
- Age Band Monitoring: As rates differ by age, employers must track employee birthdays to avoid underpayment. The government’s stated aim of narrowing age bands means this will remain a moving target.
- Apprenticeships: Employers should also check the separate apprentice rate, which often changes alongside NMW.
Employers who fail to pay the correct minimum wage face:
- Financial penalties of up to 200% of arrears (capped at £20,000 per worker).
- Public naming and shaming by HMRC.
- Employment tribunal claims for unlawful deduction of wages.
Next Steps for Employers
- Audit payroll systems before April 2026.
- Train HR and payroll staff on the new rates.
- Review contracts and policies for compliance.
- Communicate changes to employees clearly.
- Seek legal advice if unsure about obligations.
The NMW rises announced in the 2025 Budget reflect the government’s commitment to tackling low pay. For employers, these changes are more than just number, they are legal obligations with real consequences. Proactive compliance will not only avoid penalties but also strengthen workforce relations in a challenging economic climate.
