How the 2025 minimum wage changes impact hospitality payroll teams

By alisonbarlow|Feb 3, 2025|5:47 pm GMT

On April 1, 2025, the National Minimum Wage (NMW) will increase again. It’s good news for employees, particularly those under 21 who will see their rates increase significantly. But for payroll professionals, it creates a considerable amount of work.

Changes to expect

The then Conservative government promoted last year’s bump of 9.8% for workers over 21 as record-breaking. This year’s update will see the rate for over-21s increase by a comparably smaller 6.7%. However, rates for younger workers are set to increase by a whopping 16.3% for those aged 18-20 and 18% for apprentices and under-18s. This signals the government’s intention to eventually extend the over-21s rate to 18-20-year-olds as well.

April’s changes raise the hourly rate for over 21s to £12.21, with 18-20-year-olds earning £10 an hour. The changes are expected to positively impact 3.5 million workers, although there is an acknowledgement that this puts additional pressure on employers.

Baroness Phillipa Stroud, who chairs the Low Pay Commission, stated in October when the raise was announced, “The Government have been clear about their ambitions for the National Minimum Wage and its importance in supporting workers’ living standards. At the same time, employers have had to deal with the adult rate rising over 20 per cent in two years, and the challenges that create alongside other pressures to their cost base.”

The impact on payroll teams

Payroll professionals are well versed at rolling with the punches, but this update –– coupled with increases to employer NIC and new legislation –– add more pressure to an already busy time of year. But operators can’t afford to be caught out, even inadvertently. Every year, the Government names and shames employers who failed to comply with NMW regulations –– it’s a list that proves just how easy it is to slip up. It regularly features household names that (ought to, at least) have huge payroll teams and plenty of resources.

How to remain compliant

Payroll teams need to be aware of a few basics to ensure they don’t accidentally fail to meet NMW requirements:

Update employee records

It sounds obvious, but the first place to start is ensuring that all employees are on the correct pay rate ahead of the effective date (1 April 2025). For most payroll teams, this should be a relatively easy task; HR and Payroll software like Fourth’s platform will allow central changes that mass update any individuals they apply to. Fourth also enables teams to set rules that can be automatically applied when an individual meets specific criteria, such as ageing into the over-21s bracket.

Re-evaluate who qualifies

Don’t just evaluate employees currently on minimum wage. Given the size of the increases, workers paid just over the current threshold may now be caught up in NMW and could easily be missed. Payroll teams should thoroughly review all individuals’ pay rates and check each is compliant. It’s also worth reviewing rates for senior staff if you can and ensuring that there is a meaningful distinction between their pay and those for more junior positions with less responsibility.

Think beyond the hourly rate

NMW also applies to salaried workers, so it’s critical to ensure their pay at least meets the minimum threshold. Salary sacrifice, necessary expenses like uniforms, and overtime can all reduce an employee’s actual hourly rate below the minimum, so be sure to factor them into your assessment.

Consider preventative measures

Deductions that take actual hourly rates below NMW are a common pitfall. The easiest way to avoid this is to prevent it from occurring. Provide staff uniforms free of charge and place caps on salary sacrifice deductions to prevent actual wages dipping below NMW.

Implementing an accurate time and attendance system also ensures everyone is paid fairly for overtime since unpaid overtime can also reduce actual hourly pay below the NMW. eClock from Fourth can be downloaded onto a company tablet quickly and easily rolled out across multiple venues.

Navigating 2025’s NMW updates

While the updates to the NMW will benefit millions of workers, these changes have created trepidation for employers who now have to grapple with additional labour costs and the administrative burden they place on payroll teams. Audits and updates need to be completed to ensure that every employee is at least paid the equivalent of minimum wage, and a sizeable chunk of the workforce will need to be transitioned to the new rates.

Want more? Discover these resources:

• A Survival Guide to 2025 HR & Payroll Report
• 2025 HR & Payroll Legislation Checklist
• 3 Steps to Avoid Accidental Non-Compliance with National Minimum Wage
• What do you need to know about April’s new neonatal care leave?
• Employee Email Communication Template: Neonatal Care Leave Policy
• Employee Email Communication Template: National Minimum Wage Updates
• How operators can navigate the 2025 NIC reforms