Autumn Budget 2024 - National Living Wage to increase by 6.7% from April 2025

1 November 2024

National Living Wage (NLW) rates are to increase from £11.44 per hour to £12.21, an increase of 6.7%, which is yet another large increase to the minimum wage.

Since April 2024, NLW eligibility was extended to include those aged 21 and over. Under the Labour Government’s “Making Work Pay” campaign, the Low Pay Commission received a new directive in July 2024 to reduce the gap between the National Minimum Wage (NMW) and the NLW for those aged 18 and over. As a result, the wage rate for 18–20-year-olds has increased by 16.3% (from £8.60 to £10) to help close this gap over the next few years. Apprentices and 16–17-year-olds will see an increase of 18% in their rates, rising to £7.55 per hour from £6.40. Additionally, and for the first time in the history of the National Minimum Wage, the cost of living has been considered when setting the increased rates for 2025/26.

	NMW Rate from 1 April 2025	Increase in pence	Percentage increase
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 Off-set	£10.66	£0.67	6.7%

When will the change take effect?

The increased rates will apply from April 2025 and become payable in the first full pay reference period that falls either on or after 1^st April.

What are the benefits of this change?

These increases are the first to consider the cost of living in the government’s efforts to ensure that every adult worker benefits from a living wage and will be welcomed by workers.

From April 2025, workers will notice an increase in their pay packets as shown in the table below – this is before any adjustments for taxes, pensions, or National Insurance (NI) contributions are applied:

Age	Annual Hours (40 hours per week)	Annual pay based on 24/25 rates	Annual pay based on 25/26 rates	Annual Increase to pay
21 & over	2080	£23,795.20	£25,396.80	£1,601.60
18-20	2080	£17,888.00	£20,800.00	£2,912.00
16-17 & apprentices	2080	£13,312.00	£15,704.00	£2,392.00

What does this mean for businesses going forward?

Whilst these increases are a boost to employees, they bring increased additional costs for employers to fund in addition to uplifting pay rates.

For every 10 workers paid at the NLW rate, and paying the minimum 3% employer pension contribution, the increase to £12.21 per hour would equate to an annual increase of £26.8k.

If you would like to receive a free report illustrating the cost implications to your business and a free 30-minute consultation to discuss your NLW/NMW and reward strategies, please complete our Employment Cost Calculator.

Businesses funding these increases should plan for the following challenges:

Pay reviews and increases to remain compliant with complex NMW legislation
Maintaining pay differentials across grades to keep workers motivated and incentivised
Managing increased employment costs, e.g. increased employer NIC and pension contributions
Implementing more controls and processes within payroll compliance to assure compliance obligations are met due to the erosion of pay buffers between the NMW rates and salaries paid
Reviewing employee eligibility to participate in salary sacrifice schemes where pay increases may not be in line with the NMW rate increases
Updating workers and company documents in relation to employee NIC savings as salary sacrifice thresholds are eroded
Increased administrative burden to implement changes to payroll systems, not only for the NMW changes but also to factor in the change made to increase Employer National Insurance Contributions from 13.8% to 15% which takes effect from 6 April 2025.

Get in touch with our Employment tax team

If you require any support with any of the above, please do let us know. We have National Minimum Wage, Payroll and Employment Tax specialists on hand to discuss any concerns or answer your questions.

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