How businesses can prepare payroll for the upcoming wage increases

Damon Tunnicliffe, Head of Payroll, Duncan & Toplis

In April, the government is raising both the National Minimum Wage (NMW) and National Living Wage (NLW) - the NMW for 18-20 year olds is increasing to £10 per hour and the NLW for those aged 21 and over is increasing to £12.21 per hour. 

Although a positive for employees, this does present challenges for employers, particularly in managing payroll compliance - so how can they prepare? 

Ensure systems are up to date 

Starting with the very basics, businesses need to ensure their payroll systems are updated to reflect the new NMW and NLW rates. They should also make sure that all employee information is up to date and error-free, as accurate employee records are the foundation of an efficient payroll process.

To help with this, businesses can audit their payroll process before 1 April to identify and rectify errors, discrepancies and inefficiencies. This will ensure that the changes to pay rates run smoothly.

Check salary sacrifices

Deductions such as pension contributions and cycle-to-work schemes could inadvertently reduce an employee’s pay below the legal minimum, so businesses offering these salary sacrifice perks should be cautious.

It is the employer’s responsibility to ensure that all members of their team are paid the correct rate of pay for their age, and any deduction from their pay - voluntary or not - could be a breach of regulations.

Stay on top of compliance rules 

With the increase in pay rates, businesses will need to take careful consideration to ensure they’re compliant with things such as PAYE tax codes, NLW laws, the National Minimum Wage Act 1998, the Income Tax (Earnings and Pensions) Act 2003 and the Income Tax Act 2007.

This is particularly important for the new NMW and NLW increases, as the government is ramping up its scrutiny of NMW compliance under the proposed Fair Work Agency, which will replace HMRC’s NMW unit in the 2026-27 financial year. 

To make the whole process easier, businesses can consider outsourcing their payroll function to experts, alleviating payroll concerns and ensuring that changes to NMW and NLW are applied.

To find out more about Duncan & Toplis, visit www.duncantoplis.co.uk.