Stratford-upon-Avon
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Stratford-Upon-Avon
Warwickshire CV37 9NP
National Minimum Wage Increases & Salary Sacrifice Impact
Businesses must prepare for the upcoming increases to the National Minimum Wage (NMW) rates from April 2025, which could require adjustments for some employees. This article explores the NMW changes and their impact surrounding salary sacrifice (SS) pension schemes, ensuring businesses remain compliant.
What’s Changing?
From 1 April 2025, the main NMW rate, also known as the National Living Wage (NLW), will increase by 6.7% from £11.44 to £12.21 per hour for workers aged 21 and over. The rates for younger employees will also rise significantly:
- Ages 18-20: increasing from £8.60 to £10.00 per hour
- Ages 16-17 & Apprentices: increasing from £6.40 to £7.55 per hour
While this change will directly impact employers with lower-paid staff, businesses operating salary sacrifice (SS) schemes (e.g. Pension Salary Exchange, Cycle to Work, Childcare Vouchers, electric company cars) need to take extra care. No employee’s post-sacrifice salary can fall below NMW levels, meaning higher than NMW payroll adjustments may be required to ensure compliance.
For example, an employee aged 21 or over working a 37.5 hour week must earn at least £23,770 per year to meet the new £12.21 hourly rate from April 2025.
Salary Sacrifice (SS) Considerations
When employees participate in Pension Salary Exchange (PSE) or similar SS schemes, their gross salary is reduced. This means their adjusted hourly wage must still meet NMW requirements. Below is an overview of the effective hourly rates for different salary exchange scenarios:
| Age Group | Up to March 2025 | From April 2025 | ||||
| Pre 05/04/25 no PSE | Pre 05/04/25 PSE Non-QE* | Pre 05/04/25 PSE QE* | Post 05/04/25 No PSE | Post 05/04/25 PSE Non-QE* | Post 05/04/25 PSE QE* | |
| 21 and over | £11.44 | £12.04 | £11.88 | £12.21 | £12.85 | £12.68 |
| 18-20 | £8.60 | £9.06 | £8.89 | £10.00 | £10.53 | £10.36 |
| 16-17 & Apprentices | £6.40 | £6.74 | £6.57 | £7.55 | £7.95 | £7.78 |
(*For employees making higher contributions under PSE than the standard 5%, these hourly rates will increase accordingly.)
Action Required: Stay Compliant with NMW and SS Rules
If your employees earn comfortably above the new NMW rates, no changes may be required. However, if any staff members risk falling below NMW due to salary sacrifice schemes, businesses must review payroll data and adjust salaries accordingly for April 2025 onwards.
Our payroll team can assist with a detailed review, ensuring full compliance with NMW and salary sacrifice regulations. If you have concerns or need help adjusting payroll, get in touch with your usual advisor today.
Additionally, there are other NMW compliance risks beyond salary sacrifice, such as net pay deductions, incorrect time recording, and unpaid overtime. We’ll be sharing more insights on these in the coming weeks. If you have any immediate questions, reach out to us now!
Important Note
Before making any changes to employee salaries or pension contributions, business should seek professional advice from HR and pension specialists to ensure compliance with all regulatory and contractual obligations.
Grenfell James Technology Adoption Index
How does your business perform against others adopting financial tech? Find out with our interactive diagnostic:
1.
How does your business receive invoices?
A)
Invoices are mainly received in paper form
B)
Invoices are mainly received by email
C)
Invoices are emailed then automatically forwarded to a designated mailbox
2.
How are purchase invoices processed?
A)
Invoices are entered manually
B)
Invoices are attached to manually raised invoices
C)
Automated software (e.g. ReceiptBank, 1Tap, HubDoc etc) collates invoices
3.
How are accounts processed?
A)
Using Excel/paper-based
B)
Using Computer-based, offline software
C)
Using cloud-based accountancy software
4.
How often is business data revised?
A)
Data is updated annually
B)
Data is updated quarterly
C)
Data is updated monthly or more often
5.
How is banking updated for your business?
A)
Banking is updated manually
B)
Banking is updated by imports
C)
Banking is updated via a live feed
6.
How are bank payments made?
A)
Bank payments are manual
B)
Bank payments are made using bulk imports
C)
Bank payments are made directly via accounting software
7.
How are bank receipts reconciled?
A)
Receipts are chased and reconciled manually
B)
Receipts are chased and reconciled automatically
C)
A third-party platform is used to chase debts and collect fees
8.
How often are management reports produced?
A)
No reports are provided
B)
Reports are provided but often too late to be valuable
C)
Reports are automated with real-time information
Score 8-12:
Curious Exploration
Your financial technology phase is Curious Exploration
% of respondent businesses are in this phase too.
Switching accountancy systems may seem like an upheaval, but can be much more straightforward than most businesses imagine. From talking to our clients, they have found moving from paper invoicing and desktop-based accounting software to the cloud and apps quickly makes the transition process a worthwhile investment of time. Digital accounting solutions bring in streamlined processes, up-to-date business data and greater confidence in the accuracy of information when making financial decisions.
Grenfell James works with your team to fully assess the needs of your business and minimise the impact of any transitions for solutions we recommend.
Score 13-19:
Measured Discovery
Your financial technology phase is Measured Discovery
% of respondent businesses are in this phase too.
Once cloud accountancy software is in place, there’s still plenty of scope to improve your accountancy processes and make sure your business is maximising the benefits of adopting a digital accounting solution. Grenfell James assesses each business to understand how any implemented solutions are being used, identify areas for improvement and the needs of the business overall to support your business goals and achieve success.
Our team of experts can discuss a range of time-saving automation and get different apps and cloud-based solutions talking to create and manage a digital accountancy eco-system to help your business grow.
Score 20-24:
Bold Innovation
Your financial technology phase is Bold Innovation
% of respondent businesses are in this phase too.
You know the benefits of accounting technology and the impact it can have on your business goals. If you want to take it a step further, our team can conduct a systematic review of your processes, apps and business goals to ensure your digital accountancy ecosystem is keeping pace with the changing needs of a growing business.