UK Budget 2025: minimum wage increase will add ‘complexity’ to payrolls

Chancellor Rachel Reeves confirmed prior to the budget that the minimum wage would be increased, with a proportionally higher increase for younger workers, after accepting the recommendations of the independent Low Pay Commission ‘in full’.

The increase, which will take effect from 1 April 2026, will see over-21s getting a 50p (4.1%) increase to £12.71 per hour, while workers aged between 18 and 20 will get an 85p (8.5%) increase to £10.85 an hour. Under 18s and those on apprenticeships will get a 45p increase (up 6%) to £8 per hour.

The new rises mean an extra £1,500 a year for full-time employees under 21, and a £900 salary increase for those 21 and over.

Jon Fisher, an employment law expert with Pinsent Masons, said the changes would require careful scrutiny from employers to implement.

“Because of the complexity of the national minimum wage calculation, employers will need to review their positions, even where an employee’s headline rate is more than the new minimum wage,” he explained.

“The minimum salary for a full-time employee is now approximately £25,000, and even employees earning £30,000 and over may receive less than the minimum wage once the proper calculation has been applied.

“Employers who continue to operate salary sacrifice schemes for pensions contributions need to take particular care, as employees must not be allowed to sacrifice their pay to below the new national minimum wage. Employers need to ensure that their payroll systems have measures in place to prevent this from happening.”

Business groups and trade bodies had expressed concern that the increase would lead to a reduction in vacancies being offered, while Reeves said the move would benefit up to 2.7 million people once it takes effect, as she looks to implement schemes in the Budget to help with the UK’s cost of living crisis.

New plans to enforce the minimum wage increases were also announced in the Budget including closer collaboration with trade unions and local business groups; following up directly with employers on all worker complaints; and exploring new powers for the Fair Work Agency to specifically target business leaders where necessary.