Minimum Wage and National Insurance increases – Preparing for the upcoming changes

Released On 3rd Mar 2025

We are getting ever closer to the significant changes to the National Minimum Wage (NMW) rates and Employer National Insurance Contributions (NICs), which come into effect on 1 April.

These changes could have a considerable impact on employment costs for a wide range of employers and so it is important to take immediate action ahead of these new rates.

Here’s what you need to know about the upcoming changes and how to prepare for them.

New employer NIC rate

From 6 April 2025, there will be changes to employer NICs:

Rate increase – The standard rate for employer NICs will rise to 15 per cent.
Secondary threshold adjustment – The threshold at which employers start paying NICs will decrease from £9,100 to £5,000 per annum.

This is a significant increase in the current rate of employers NIC, which could have a substantial financial impact on both cash flow and long-term planning.

To help some firms manage this additional cost the Employment Allowance will increase to provide up to £10,500 per year in relief on employer secondary Class 1 NICs.

The Government will also remove the £100,000 eligibility cap making the Allowance more broadly available to all eligible businesses rather than just a growth incentive for small firms.

New NMW rates

Effective from 1 April 2025, the NMW rates will also increase as follows:

National Living Wage (NLW) (age 21 and over) – Rising from £11.44 to £12.21 per hour, marking a 6.7 per cent increase.
Ages 18 to 20 – An increase from £8.60 to £10.00 per hour, representing a 16.3 per cent rise.
Under 18 and apprentices – Rates will go up from £6.40 to £7.55 per hour, an 18 per cent increase.

These adjustments aim to reflect the cost of living and ensure fair compensation for workers across all age groups.

However, for employers, this signifies a further hike in employment costs at a time when they are already having to deal with the NIC rate rise.

Legal implications of non-compliance

Failing to meet NMW obligations can lead to serious legal consequences for employers.

Penalties for non-compliance include:

Fines of up to 200 per cent of the underpayment (up to a maximum of £20,000 per worker).
Naming and shaming by the Government for persistent offenders, which could damage a business’s reputation.
Employment Tribunal claims from employees seeking back pay or compensation for failure to pay the legal minimum wage.

Given the potential risks, employers need to plan carefully to stay compliant.

Preparing for the changes

Employers should take the following steps to prepare for these upcoming changes:

Ensure that payroll software and processes are updated to accommodate the new rates and thresholds.
Account for the increased employment costs in financial planning and budgeting.
Inform employees about the forthcoming changes to pay rates and statutory entitlements. Update all employment contracts to reflect the new minimum wage rates, particularly those for part-time, temporary, and young workers.
Consider reviewing your pay structure to maintain appropriate wage differentials.
Make sure that staff within your business who are responsible for payroll and HR are fully briefed and trained on the updated requirements.
Conduct regular wage audits to ensure that no one is being paid below the new NMW. Records of all audits should be documented thoroughly and stored in secure location fines.
Review your pricing strategy to take account of increased costs.

Taking a strategic, well-planned approach to the upcoming changes will put your business in a stronger position than those who react impulsively.

Our expert accountants and tax advisers can help you manage your obligations and keep your business goals on track – enabling your business to not just survive but thrive.