In a move aimed at supporting the lowest-paid workers and driving economic growth, the Chancellor has announced a significant increase to the National Living Wage.
Starting in April 2025, over three million workers will receive a pay boost as the National Living Wage rises from £11.44 to £12.21 per hour. This 6.7% increase aligns with the government’s commitment to making the minimum wage a true living wage. For businesses, this change means new considerations in payroll, budget forecasting, and potentially even workforce management.
Here's a breakdown of what this increase means for workers, employers, and your overall business strategy.
Key Details of the Minimum Wage Increase
National Living Wage for Workers 23 and Older: The hourly rate will increase from £11.44 to £12.21 starting in April 2025. This raise is worth approximately £1,400 per year for eligible full-time workers (based on a 35-40 hour work week).
National Minimum Wage for 18-20 Year-Olds: Younger workers will see a significant boost as well, with an increase from £8.60 to £10.00 per hour. This £1.40 jump represents the largest increase on record for this age group, adding approximately £2,500 per year for full-time employees working 35-40 hours a week.
Toward a Single Adult Wage Rate: This increase marks the first step towards gradually aligning the National Minimum Wage with the National Living Wage, with an eventual goal to establish a single adult wage rate over time.
The increase is a proactive step in delivering a “Plan to Make Work Pay,” aimed at boosting productivity, supporting workers, and fostering economic growth. The broader goal is to create a workforce ready to meet economic challenges, providing more good jobs and ensuring prosperity reaches all corners of the UK.
How Much Will a Full-Time Worker Make?
For businesses and employees alike, it’s important to understand the specific impact of these new rates in terms of annual earnings. Here’s what full-time workers at minimum wage can expect to earn, depending on their weekly hours:
- At 35 hours per week:
- Annual Income: £22,184 (at £12.21 per hour)
- Monthly Income: Approx. £1,849
- At 40 hours per week:
- Annual Income: £25,397 (at £12.21 per hour)
- Monthly Income: Approx. £2,116
For younger workers (18-20) who will earn £10.00 per hour:
- At 35 hours per week:
- Annual Income: £18,200
- Monthly Income: Approx. £1,516
- At 40 hours per week:
- Annual Income: £20,800
- Monthly Income: Approx. £1,733
What Does This Mean for Your Business?
1. Increased Payroll Costs
For businesses employing minimum-wage workers, this rise will mean a direct increase in payroll expenses. While this change can support employee satisfaction and retention, it will also require many companies to adjust their budgets to account for higher wages across the board.
2. Potential Pricing Adjustments
To absorb increased payroll costs, many businesses may need to evaluate their pricing strategies. Consider whether small price adjustments could offset the wage rise without significantly impacting customer satisfaction. Alternatively, focus on premium offerings that add value for customers while increasing revenue.
3. Improved Productivity and Employee Satisfaction
One positive outcome of higher wages is that employees may feel more valued and engaged in their roles, which can lead to increased productivity and job satisfaction. As the government notes, a more motivated workforce is often a more productive one, which can support business growth in the long term.
4. Cash Flow and Budget Adjustments
Now is a good time to assess your current cash flow and budget forecasts. Evaluate where adjustments can be made to prepare for increased wage costs, and consult with your accounting team on strategies to optimize cash flow and maintain financial stability.
5. Aligning Business Goals with Economic Growth Initiatives
This wage increase reflects the government’s push toward economic growth and higher standards of living across the country. Aligning your business goals with this mission — such as investing in training or productivity-enhancing technologies — can help you capitalise on government incentives and support long-term growth.
How Amanah accountants Can Help
Navigating wage increases and managing labor costs is a challenge for any business. Our team at Amanah Accountants specialises in helping businesses adapt to wage changes by providing support with budgeting, payroll management, and financial forecasting. We can work with you to ensure that these adjustments are smooth and strategic, setting your business up for success in a changing economic landscape.