The National Minimum Wage and National Living Wage is set to increase in April 2025. With National Insurance Contributions also seeing an increase from 13.8% to 15%, this could mean significant cost increases for businesses, with SMEs and owner-managed businesses most likely to feel the financial impact. Our Business Recovery and Restructuring team discuss the changes to National Minimum Wage and how owners can prepare for the increase in costs.
Businesses’ response to the wage increases
From 2022, a greater choice between jobs offering both NMW and NLW, especially in saturated areas such as London, resulted in an employees’ market for these job roles. This meant many OMBs and SMEs, particularly in the retail, hospitality and manufacturing sectors, had to offer the NLW in order to remain competitive.
Many smaller businesses are currently looking towards investing in technology and part-time workers in order to save on wage costs, although this is only feasible in specific sectors and therefore not an option for all owner-managed businesses.
How much is the National Minimum Wage rising?
The National Minimum Wage (NMW) for those aged 21 and over, also known as the National Living Wage (NLW), will rise by 6.7%, from £11.44 to £12.21 an hour from April 2025. For someone working full time, or a 37.5-hour week, that equates to £23,873.60 a year, up from £22,368.06.
All employers are required to pay employees aged 21 and over at least the National Living Wage, with all workers and, in some cases, apprentices, under the age of 21 entitled to the National Minimum Wage.
The changes to other wage bands are as follows:
| Wage band | Current NMW rate | New NMW rate from April 2025 | Increase (£) | Percentage increase |
| National Living Wage (21 and over) | £11.44 | £12.21 | £0.77 | 6.7 |
| 18-20 Year Old Rate | £8.60 | £10.00 | £1.40 | 16.3 |
| 16-17 Year Old Rate | £6.40 | £7.55 | £1.15 | 18.0 |
| Apprentice Rate | £6.40 | £7.55 | £1.15 | 18.0 |
| Accommodation Offset | £10.66 | £0.67 | 6.7 |
What practical steps can businesses take to minimise the financial impact of NMW and NLW increases?
With many businesses facing over a 10% increase in wage costs, on top of increases in National Insurance Contributions, some practical steps can be taken to prepare for these changes.
- Identify any loss-making areas in your business – Ahead of the increases in April, it is important for businesses to identify any loss-making areas of their business and, if they are absorbing valuable cash flow, consider if that is the best decision to make. Whilst it can be beneficial in some cases to invest in the loss-making product/service lines, it is important that business owners understand the granular data to support these investment decisions.
- Review current staffing and operation hours for cost-saving opportunities – It is also vital for any business that will struggle to afford these extra costs to consider cutting down on staff and operation hours, particularly in retail or hospitality businesses where this is possible. For example, the installation of a vending or self-service machine may be more cost-effective than paying the wage of a member of staff.
- Consider whether the business needs to implement a freeze on pay rises to enable the impact to the legislative changes to be spread over a longer period of time.
- In difficult circumstances or as a last resort, businesses can also consider offering unpaid leave to staff or temporarily laying off member of staff to save on costs.
What other changes are expected in this area?
Alongside the changes to NMW and NLW, there is a consultation being undertaken to change the employment legislation to provide workers with Day 1 rights, opposed to accruing such protective rights after a period of two years. The Employment Rights Bill was launched in Parliament last October which, if brought into effect, will put measures in place to give employees basic rights from their first day at a new job and will give greater protection against unfair dismissal from day 1.
The Employment Rights Bill will also establish rights to paternity and parental leave from day 1 in a job, strengthen statutory sick pay, remove the lower earnings limit for all workers and cut out the waiting period before sick pay kicks in.
There are also changes planned to the Apprenticeship Scheme, with level 7 courses no longer being funded under the scheme.
Will your business be affected by these changes? Seek specialist support sooner rather than later
Whilst these increases in costs may be daunting to business owners, they present a good opportunity to evaluate your business model and future investment plans. Our business recovery and restructuring team recommend acting as soon as possible, as they forecast a rise in queries in how OMBs will remain profitable during this time.
If you believe your business may struggle with the rise in NMW, NLW and NICs, get in touch today to discuss your options for the future with one of our business recovery experts.
