5 impacts of the rise in the National Living Wage

Budget 2025 announced a forthcoming rise to both the National Living Wage and the National Minimum Wage, with the aim of keeping wages in line with inflation.

But what does a rise in wage rates mean for employers like you?

1. Higher wages for those on the National Living Wage

The National Living Wage (NLW) will rise from 1 April 2026 by 4.1% to £12.71 per hour for eligible workers aged 21 and over. This will increase the gross annual earnings of a full-time worker on the NLW by £900, benefiting around 2.4m low-paid workers.

2. Increased pay for those on the National Minimum Wage

The National Minimum Wage rate for 18–20-year-olds will also increase by 8.5% to £10.85 per hour from 1 April 2026. This will mean an earnings increase of £1,500 p/a for a full-time worker. The NMW for 16–17-year-olds/apprentices will increase by 6% to £8 per hour.

3. Higher labour and operating costs for your business

Where you have workers on the NLW and NMW, this means your payroll costs are going to increase from April 2026. The wage rises will increase your gross payroll, automatically raising Employer National Insurance and workplace pension contributions. This has the potential to put additional pressure on your margins, cash position and net profit as a business.

4. Pressure to boost prices or drop staffing levels

The question is how you react to this increased pressure on your payroll costs. You could offset the higher costs by raising prices, but this risks alienating your existing customers. Or you could cut staff hours and reduce hiring to bring down the overall labour costs you’re incurring.

5. A need to invest in more labour-saving technology

The reality is that human labour costs money. By investing in artificial intelligence (AI), robotic process automation and smart production techniques, some of your basic tasks could be automated. This removes some of your dependency on expensive human labour, but you’ll need to balance the need for human skills and talent against the benefits of automation.