Minimum wage to rise by 3.9%: what the new rates mean for workers and employers

Minimum wage to rise by 3.9%: what the new rates mean for workers and employers

Millions of workers across the UK are set to receive a pay rise next spring after the government confirmed a 3.9% increase in the National Living Wage and National Minimum Wage.

From 1 April 2027, workers aged 21 and over will be entitled to at least £13.21 an hour, up from £12.71.

The increase was announced as part of the 2026 Budget and follows recommendations from the Low Pay Commission.

The new minimum wage rates from April 2027

The changes apply across several age groups.

• Workers aged 21 and over: £13.21 an hour, up from £12.71
• Workers aged 18 to 20: £11.27 an hour, up from £10.85
• Workers aged 16 to 17: £8.31 an hour, up from £8.00
• Eligible apprentices: £8.31 an hour, up from £8.00

All four rates are rising by 3.9%.

The government expects around 2.3 million workers to benefit directly from the higher statutory minimums.

For a full-time worker, the difference adds up

A 50p hourly increase may not sound dramatic on its own, but over a full working year it becomes much more noticeable.

According to the government, a full-time worker paid the National Living Wage could earn around £910 more in gross annual pay once the new rate takes effect.

That matters most for people whose wages sit close to the legal minimum, particularly in sectors where hourly pay remains common.

Retail and hospitality will feel the change quickly

The impact will not be evenly spread across the economy.

Businesses with a high proportion of lower-paid and hourly workers are likely to see the largest increase in payroll costs. Retail, hospitality, leisure and some parts of social care and services are among the sectors where minimum wage changes tend to be felt most directly.

For employers, the new rate does not only affect workers currently earning exactly £12.71 an hour.

Some businesses may also choose to adjust the pay of employees earning slightly more than the minimum in order to preserve differences between junior, experienced and supervisory roles.

This is sometimes referred to as pay compression: when the gap between the legal minimum and higher-paid positions becomes smaller.

The increase is smaller than some recent rises

The 3.9% increase is notable, but it is more measured than some of the larger minimum wage rises seen in recent years.

The Low Pay Commission said it had to balance two competing pressures: protecting the real value of wages while also considering difficult conditions facing employers.

Its recommendation takes the National Living Wage to £13.21, slightly below the level that would have immediately brought it to the commission's reference point of two-thirds of median earnings.

The Commission said the new rate should still rise faster than the inflation forecasts it considered for the period from April 2027 to March 2028.

Details of the recommendation are available in the Low Pay Commission's advice to the government.

Younger workers are receiving the same percentage increase

One detail stands out in this year's decision.

Workers aged 18 to 20 will also receive a 3.9% increase, taking their minimum hourly rate from £10.85 to £11.27.

In previous years, younger workers sometimes received larger percentage increases as the government worked towards narrowing the gap between age-based rates.

This time, however, the government gave the Low Pay Commission a broader remit to consider labour market conditions when making its recommendation.

The result is a more even rise across age groups rather than a faster increase for younger workers.

Apprentices will move above £8 an hour

The apprentice rate will rise from £8.00 to £8.31 an hour.

This rate applies to apprentices who are under 19, as well as those aged 19 or over who are still in the first year of their apprenticeship.

Older apprentices who have completed their first year are entitled to the minimum wage for their age group instead.

The government publishes the full eligibility rules and current rates on its National Minimum Wage page.

Higher wages also mean higher costs for employers

For workers, the headline effect is straightforward: the legal pay floor is going up.

For businesses, the calculation is more complicated.

A higher hourly wage increases direct salary costs, but it can also affect employer National Insurance contributions, pension contributions and pay structures above the minimum rate.

Employers with large numbers of hourly-paid staff may therefore need to review staffing levels, rotas, prices or productivity targets ahead of April.

Some employer groups have warned that repeated increases in labour costs are becoming difficult to absorb, especially in sectors with tight margins.

At the same time, the Low Pay Commission said the available evidence does not point to widespread job losses being caused simply by previous minimum wage increases.

The legal minimum is changing, but take-home pay is a separate question

It is also worth remembering that an increase in the hourly minimum does not translate pound-for-pound into take-home pay.

The final amount a worker receives depends on factors such as income tax, National Insurance, pension contributions, hours worked and any other deductions.

Likewise, not everyone currently earning below £13.21 will receive exactly a 50p rise. Some workers already earn between the current and future minimum and will simply need to be brought up to the new legal floor.

What happens next?

The new rates do not take effect immediately.

Employers have until 1 April 2027 to update pay rates for eligible workers.

For employees, the simplest check is the hourly rate shown on their payslip once the change comes into force. If a worker is legally entitled to the National Living Wage or National Minimum Wage, their pay must meet the new rate for their age and circumstances.

The latest increase is therefore both a pay rise for millions of workers and a new cost calculation for employers.

For lower-paid workers, the change will provide a direct boost to gross earnings. For businesses, particularly those relying heavily on hourly-paid staff, the months before April will be about working out how to absorb that increase without disrupting the wider operation.