National Minimum Wage and National Living Wage challenges and changes

Every employer is responsible for paying the National Minimum Wage (NMW) and National Living Wage (NLW) to eligible workers, for time worked, and the rates increased significantly from April 2025 – in fact, the largest recorded increases. 

The NLW is for those aged 21 and over and the NMW is for younger workers – both referred to as NMW below:

	21 and over	18 to 20	Under 18	Apprentice
2024 rate	£11.44	£8.60	£6.40	£6.40
April 2025	£12.21	£10.00	£7.55	£7.55
Increase %	6.7%	16.3%	18%	18%

 

Impact analysis – what does this mean?

The headline NMW increases are great news for the workforce in terms of pay. With uplifts mitigating the freeze in the personal income tax allowance threshold for the lowest paid too.

The increases this year, together with the Government commitment of establishing a single adult NMW rate, personal income tax allowances and thresholds not set to increase until April 2028, NMW will continue to grab the headlines in the coming years.

Employers will need to be assessing affordability, including the 1.2% increase in employer NIC and the higher liabilities resulting from the reduction in the employer secondary threshold from April. Effective workforce planning requires an understanding of organisational goals, workforce capabilities, market trends, and critical management information. Businesses will therefore need to determine the skills and resources needed, drilling down into how working hours/patterns and pay bandings cut across financial planning. In basic terms, how best to create an agile and affordable workforce now and for the future.

Employers may have also previously decided to pay their workforce above the NMW rates, applying a calculated commercial top up, to mitigate the risk of paying below NMW and to meet the strategic needs of attracting talent. Will employers continue to have such choices? With the current economic pressures and uncertainty in global stability, the cost of employment in the UK, will continue to be a top priority for employers in 2025 and beyond.

Cost mitigation – what other measures can an employer take?

Alongside workforce planning, employers can also consider implementing salary sacrifice for core benefits such as:

• Pension contributions
• Annual holiday buy/sell

to reduce the headline wage bill, employers NIC, and other associated employment costs.

With the correct governance, policies and controls, salary sacrifice can be implemented effectively, thereby ensuring employees’ pay does not fall below NMW, whilst also delivering higher employee take home pay.

NMW, the risks – what do employers need to know?

Most risks and challenges for employers in terms of pay for NMW purposes arise in consequence of:

• Incorrect application of apprentice and NMW rates due to annual increases or new rate transitions 
• Corrections in employee pay, including leavers
• Challenges in tracking and recording working time, including shift start and end tasks, training, and travel time
• Requirement for employees to wear specific clothing or provide tools
• Deductions from employee pay e.g. meals, uniforms, AEO fees and saving clubs
• Incorrect implementation of salary sacrifice 
• Incorrect application of the accommodation offset
• Volunteers, and workplace students, and whether they exempt for NMW purposes

NMW, the detail – what actions can an employer take?

The critical starting point for ensuring NMW compliance, is to understand the workforce. What work they do, their terms, and how individuals are paid, if they are:

• salaried
• hourly/time paid
• measured/output paid
• or other

employers need this to assess and understand the workforce to determine pay levels that meet NMW obligations. This is essential, not optional.

NMW, risk mitigation – what controls can an employer embed?

Many payroll applications can be set up to notify when an individual's compensation might fall below the NMW. Having such a risk mitigation control in place is a great first line defence. In our experience, calculating NMW pay requires considering other variables beyond this method. Therefore, diligence in pay governance, practices, and policies must encompass the entire pay and benefits landscape; including pay inputs, processing, and outputs, which are continuously refined.

NMW - the breaches

The rules are outdated and complex, often causing NMW breaches due to technicalities rather than intentional employer actions.

This therefore continues to be an area of HMRC scrutiny, and the cost to employers in getting it wrong will continue to rise, in line with the NMW rates, in addition to:

• protracted HMRC investigation
• requirement to make good underpayments for the previous 6 years
• penalties up to 200% of the underpayment up to £20k per person
• naming and shaming in the Press, which carries reputational damage.

Since its introduction in 1999, HMRC has focused NMW compliance efforts on high-risk industries and areas, guided by worker concerns regarding pay.

HMRC have continued to invest in NMW compliance activity, increasing NMW enforcement officers from 330 in 2017 to more than 450 in 2025. To achieve the Government’s goal of “making work pay,” the new Fair Work Agency should build on HMRC’s successful NMW compliance efforts.

How can we help?

Our Employment Tax team specialises in all areas of income tax, NIC and NMW compliance and enquiries, speak to us today about reducing employment costs, whilst managing the complexities of NMW obligations.