The government's proposal is to change the remit of the Low Pay Commission, which currently sets the various National Minimum Wage ('NMW') levels, so that it accounts for the cost of living.  They have also committed to removing the "discriminatory" age bands, so that all adults are entitled to the same minimum wage.

Labour has pledged that it will implement its "New Deal for Working People" by introducing legislation within 100 days.  Whether the changes to NMW legislation will take place within those 100 days remains to be seen, but it would seem a fairly easy change to bring about, as it merely requires amendments to secondary legislation.  Although, the true impact is only likely to be felt in April 2026, as the consultation for the NMW rates for April 2025 has already started, which is when the next increase to NMW is expected albeit this may be subject to change.

What does this mean for employers?

Unfortunately, as with many of the proposed changes to employment law, it is uncertain what will actually happen.  It would, however, seem likely that the NMW rate will increase and there will be one rate for all.  Arguably, it is the scale of any increase that is the real unknown.

The Living Wage Foundation considers the real cost of living (outside of London) to be £12 per hour.  That would be an increase of over 4% to the NMW rate for those aged 21 or over.  It would lead to a significant rise for those between the ages of 18 and 20, with their pay increasing from £8.60 (parents may consider rent adjustments).

Given the increase in the NMW living wage rate in April 2024 was nearly 10%, this may not appear to be a significant increase.  What would appear clear is that the NMW rate will continue to increase.

The real issue for employers may not be the increase to labour costs but rather once they start having to engage with NMW legislation (as their lowest paid staff become paid at the NMW rate) is understanding how to determine NMW compliance.  NMW legislation and its enforcement is notoriously complex – a straight-forward concept of an average hourly rate has become entirely unrecognisable from what any lay person would understand.  We are finding, not unsurprisingly, that many payroll, HR and legal teams are not equipped to truly test their compliance.  Even for lawyers it is often difficult to reconcile the legislation, HMRC guidance and the case law in this area.

Employers should get on the front foot and interrogate their systems for checking NMW compliance to ensure that they are fit for purpose.