Minimum Wage and National Insurance Changes from April

From April changes to National Minimum Wage and National Insurance came into effect, here we discuss the changes and the impact on businesses.

Minimum wage increase

The various minimum wage rates have risen from April 2025. The minimum wage for employees aged 21 and over (the National Living Wage) will rise by 6.7%, from £11.44 to £12.21 an hour from April 2025. An employee working 35 hours a week will have an increase in annual earnings of £1400. An employee working 40 hours a week will earn an extra £1600 a year.

The minimum wage for 18 to 20-year-olds will increase from £8.60 to £10 an hour. The increase in the minimum wage for under-21s is the largest on record, a rise of £2500 for a full-time employee. This is a step towards the Chancellor’s aim of a single rate for all adults and, perhaps, foreshadows further increases in the rate for the under-21s. The largest rise is for apprentices which increases from £6.40 to £7.55 an hour, an increase of 18%. These large increases were the result of the Government instructing the Low Pay Commission (LPC), which recommends minimum wage rates, to include the cost of living in its calculations.

This extra cost will be borne by businesses and there have been warnings that this move could harm Britain’s competitiveness. For example, UKHospitality has warned that the increases in the minimum wage would add £1.9 billion to pubs and restaurants’ wage bills. Fears have been expressed that the extra costs of employing staff could impact a business’s willingness to take on staff. In particular, the large increase in the cost of apprentices may see a reluctance to take on new ones.

National Insurance

Making up over half of the £25 billion in tax rises is the increase in employers’ NI. This has increased by 1.2%, from 13.8% to 15%. The earnings threshold at which employers start making contributions has also been cut — this had been £175 a week (or £9100 a year) and has been cut to £96 a week, or £5000 per annum.

Previously, the employers NI rate below this threshold is nil and salaries or wages paid above the threshold of £175 a week were subject to National Insurance at 13.8%. From April 2025, 15% employer National Insurance is due on wages and salaries over £96 a week.

There are many impacts of an increase in employer NI. Employers often include the cost of NI when calculating total wage costs so an increase in employer NI may, therefore, impact the number of employees that can be employed.

A further impact is the interaction with the minimum wage. The new minimum wage is £12.21 an hour. An employer may restrict the hours worked by part-time employees to 7.5 hours a week. This gives a total weekly wage of £91.58, lower than the NI threshold and consequently not subject to employer NI.

The chancellor has tried to ameliorate the NI increases by extending the Employment Allowance, the amount employers can claim back from their National Insurance bill. The budget has increased this from £5000 to £10,500. The Employment Allowance can be claimed by a business (or charity) if the employer’s Class 1 NI liabilities were less than £100,000 in the previous tax year. The Employment Allowance can also be claimed for the previous four tax years (although each year has some differing rules regarding amounts and eligibility). Thus, if the employer NI paid is £10,500 or less, these increased rates will not affect the employer.

For example, if there is one employee being paid the minimum wage for 35 hours a week, the total wage bill is £22,222.20. The NI threshold for employers is £5000. Thus, £17,222.20 is subject to NI of 15%, which equals £2,583.33. Therefore, if there are four employees on minimum wage, a total of £10,333.32 employer NI would be due and can be claimed back under the Employment Allowance.

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