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Labour’s plans for National Minimum Wage | What employers need to know ahead of April 2025
Written by Kyle Williams on 21 October 2024
Get ready for a substantial boost to the National Minimum Wage (NMW), which is set to increase from 1 April 2025. With rates expected to fall between £11.82 and £12.39 an hour, this initiative is a key component of Labour’s “Plan to Make Work Pay”, aiming to align wages more closely with the cost of living.
But it’s not the jump in rates that employers should be most concerned about. Labour has also pledged to scrap the “discriminatory” age bands on minimum pay to create a single adult rate, effectively giving a significant pay rise to those aged 18 to 20.
A fair shake for all adults
Under the new government’s drive to enhance workers’ rights, the Low Pay Commission (LPC) has been instructed to reassess how wages are set. A significant push is underway to harmonise the NMW rates for all adults by scrapping the 18 to 20-year-old rate, effectively closing the gap between those in this age band and those 21 and over who receive the National Living Wage.
Naturally, this will translate into higher costs for businesses, particularly in sectors that heavily rely on younger workers, such as retail and hospitality. Employers will need to carefully review their wage structures and budget forecasts to manage these increased expenses, ensuring compliance while maintaining financial stability. Proactive planning will be crucial to navigate these changes effectively and remain competitive in a tightening labour market.
Despite Labour’s push for higher wages, the LPC will still evaluate the potential effects these changes could have on businesses, employment, and the economy. Its revised projections, confirmed on 5 September 2024, suggest rates will land between £11.82 and £12.39 for April 2025. These proposed wage enhancements are seen as pivotal to driving economic growth while ensuring fair payment for all workers. As we approach Budget Day on 30 October 2024, the LPC will consider these multifaceted issues to strike a fair balance.
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Labour's broader mission
This proposed increase is part of Labour’s broader campaign to reform workplace rights – initiatives rooted in its pre-election manifesto. After thoughtful amendments considering concerns from businesses, the initiative, formerly known as the New Deal for Working People, is now termed “Make Work Pay”.
Promises include a comprehensive consultation prior to any legislative action and commitments to ban zero-hour contracts, end “fire and rehire”, improve sick pay, and grant “basic rights” from day one.
Free resources: New Labour Government Hub
From guides to webinars, our employer hub contains all the information you need to prepare for and adapt to impending employment law changes, ensuring your organisation remains compliant in the months and years ahead.
Current wage guidelines
As of 1 April 2024, NMW hourly rates are as follows:
Age | Current rate |
21 and over | £11.44 |
18 to 20 | £8.60 |
Under 18 / apprentices | £6.40 |
Apprentices qualify for this rate if they are either under 19 or aged 19 or over but still in the first year of their apprenticeship. Recommendations for new rates effective from 1 April 2025 will be finalised by the LPC this October before the 30 October Budget.
Strategically preparing for the wage increase
The significant increase anticipated in 2025 follows the considerable wage adjustments made in April 2024, prompting businesses to re-evaluate their financial strategies. Employers should explore measures like:
- Reviewing and adjusting financial forecasts and budgets, especially to account for the potential impact of removing the 18 to 20 age band. Assessing how many workers will be affected and calculating the potential costs is crucial for accurate planning.
- Enhancing workforce efficiency through training and performance management.
- Streamlining operations to mitigate costs.
Employers may also need to anticipate a ripple effect across all payroll scales, potentially leading to expectations for increased wages beyond minimum pay. To manage this, a comprehensive review of salary and benefits can foster a more rewarding strategy.
Ensuring compliance
HMRC remains vigilant in enforcing NMW adherence, issuing penalties, recovering arrears, and ‘naming and shaming’ non-compliant businesses. If it finds that an employer has underpaid, it can issue a notice of arrears requiring them to pay the outstanding wages going back up to six years. The employer may also face a financial penalty in the form of a fine of up to 200% of the total underpayment, up to a maximum of £20,000 per worker.
In addition, if a worker believes they have not been paid the correct NMW or NLW, they can make a claim for unlawful deductions to an Employment Tribunal.
It’s therefore important to stay compliant to avoid financial penalties and reputational consequences.
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