Although all employment law news and comment is currently dominated by the reforms brought by the Employment Rights Act 2025, it is crucial for employers not to overlook the significant increases to the National Minimum Wage (NMW) and National Living Wage (NLW) scheduled to take effect, following the laying of new draft regulations before Parliament. From 1 April 2026, revised rates will take effect delivering another year of substantial uplifts.
The NLW for workers aged 21 and over will rise from £12.21 to £12.71 per hour – a 4.1% uplift. The NMW for those aged 18 to 20 will increase from £10.00 to £10.85 per hour, representing an 8.5% increase.
| 21 and over | 18 to 20 | Under 18 | Apprentice | |
| April 2025 Rates | £12.21 | £10 | £7.55 | £7.55 |
| April 2026 Rates | £12.71 | £10.85 | £8 | £8 |
These changes form part of a continued pattern of steep annual rises which have gradually reshaped pay structures across many sectors and the economy generally.
What does this mean for employers?
For employers, the implications of these sustained increases are becoming more pronounced each year. One clear trend is the rise in pay compression and distortions in pay grading, where the gap narrows between employees paid at or near the minimum rate and those in more skilled roles or supervisory positions. A full time worker on the NMW will soon earn in the region of £25,000 per year before tax, bringing their pay closer to the current median UK salary of around £39,000. Inevitably an NLW/NMW rate increase will be presented as justification by higher paid workers for a corresponding increase in their salary, and further inflates employers’ wage bills.
Where wider pay frameworks have not increased at a comparable pace, some employees may find their pay sitting only slightly above the statutory minimum. The knock-on effect of this is that many employers may find themselves increasing at risk of breaching their NMW obligations. It is therefore critical that employers review their payroll systems and compliance processes to ensure they remain fully aligned with the new rates. This may include reassessing pay structures, reviewing salary sacrifice arrangements and verifying that working time calculations are accurate and up to date.
Ensuring NMW compliance
Employers should not assume that simply dividing pay by hours worked will give reliable reassurance; NMW compliance is often far more technical. The NMW rules differ depending on the type of work involved- whether salaried, time based, output based or unmeasured – which can significantly affect the calculation. In addition, there are several areas where employers often fall into difficulty, including:
- Determining which hours count as ‘working time’;
- Understanding which payments can legitimately be included in NMW calculations; and
- Managing deductions or salary sacrifice arrangements without inadvertently reducing pay below thresholds.
Specific problem areas include time spent on mandatory training, certain travel obligations, time off in lieu arrangements, absences and even elements of trade union work. Each of these will need to be assessed carefully.
The consequences of getting NMW compliance wrong can be severe. HMRC can require employers to repay arrears (calculated at current rates) and impose significant penalties on a per-worker basis. There is also the reputational impact of being publicly named for breaches, something HMRC continues to use actively.
The Fair Work Agency
A part of its employment rights reform package, the Labour Government has announced the creation of a Fair Work Agency (FWA), expected to launch in April 2026. This new body will consolidate responsibility for enforcing rights including NMW/NLW, holiday pay and statutory sick pay. While its final structure and powers have yet to be confirmed, it is anticipated that the agency will bring a more coordinated and rigorous approach to enforcement, meaning ensuring NMW/NLW compliance has never been more important.
How can we help?
Given the scale of the upcoming increases and arrival of a new enforcement regime, now is an important time for employers to review their pay structures, audit their NMW compliance and ensure robust systems are in place ahead of April and ahead for further annual rises beyond.
For further information about issues raised in this article, please contact a member of our Employment team.
