As part of this year’s Autumn Budget, the Chancellor – Rachel Reeves – confirmed the minimum wage rates that will be in place from April 2025. It comes after the Government has already taken steps to deliver on the national minimum wage pledges made in the run-up to the general election in July. Here we explore what the announcement means and what is on the horizon when it comes to minimum wage.
What are the new rates?
National minimum wage is currently divided into different age bandings. The current rate of the National Living Wage (NLW) is £11.44 per hour, and it is now payable to workers aged 21 and over. The Chancellor confirmed, as part of the Budget 2024, that the NLW will increase to £12.21 per hour.
The National Minimum Wage (NMW) - the minimum rate for 18 to 20-year-olds – is currently £8.60. This will increase to £10 per hour.
The minimum rate for those over compulsory school age but not yet 18 is currently £6.40 and this will increase to £7.55 per hour. Apprentices aged under 19, or 19 or over and in the first year of their apprenticeship, will also see an increase from £6.40 to £7.55 per hour.
The increased rates do not apply immediately. The new minimum wage rates will need to be applied from your first pay reference period which starts on or after 1 April 2025. For example, if you pay staff monthly and run your payroll from 11th of each month, you only need to apply the new rates from 11th April 2025.
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How does the Government propose to change National Minimum Wage?
In the run-up to the general election, in their manifesto document Plan to Make Work Pay, the government promised to make sure the minimum wage is a real living wage that people can live on. They pledged to change the Low Pay Commission’s remit so that alongside medial wages and economic conditions, the minimum wage would reflect the need for pay to take into account the cost of living. The government also said that they would remove the age bands which they described as ‘discriminatory’.
Once the government were elected, they instructed the Low Pay Commission (LPC) to consider the cost of living when devising future rates of the national minimum wage as well as requiring them to move towards a single rate of minimum wage for all, regardless of age.
The large increases announced by the Chancellor in the Budget, as set out above, are the result of the government’s instructions to the LPC. The government has said that the increase in the 18–20-year-old rate narrows the gap between that and the NLW, in anticipation of the adult rate being extended to 18-year-olds in future years.
The removal of the age bandings will simplify pay administration for employers but will clearly increase the wage bill because it is not likely that the single rate will be set at a level lower than the current highest rate; younger workers will be entitled to the same rate of pay as those older than them who are legally entitled to be paid more for carrying out the same work.
It remains to be seen whether the apprentice rate will continue to exist; this rate is in place to acknowledge that apprentices are learning their trade and are not expected to be as capable as those who already have the qualifications.
What about the Real Living Wage?
The Living Wage Foundation is an organisation that campaigns for a higher minimum rate of pay for workers. It sets its own minimum hourly rate every year – which is higher than the rate required by the government – with reference to the cost of living. Employers can voluntarily sign up to the campaign and pay their workers with reference to this rate instead of the legally required minimum age structure.
Thousands of employers in the UK are signed up to pay the Foundation’s higher minimum wage rate. The rate is currently £13.15 for those in London and £12 per hour for those outside of London. On 23 October 2024, the Foundation announced that the London rate of the real living wage has increased to £13.85 and the rate for workers outside of London has increased to £12.60 per hour. Employers who have signed up to paying the real living wage have until 1 May 2025 to implement these increases.
It will be interesting to see what the impact of the government’s new methodology on setting the legally required minimum wage will be on the Real Living Wage in the future.
If you have any questions about the minimum wage rates, reach out to our HR Advisory Team who are on hand to help you.
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