National Minimum Wage Rises to £12.21/hr

The National Living Wage (NLW) for workers aged 21 and over increased to £12.21 per hour from 1 April 2025, up from £11.44. Based on a standard 37.5-hour working week, this sets the annual minimum wage floor at approximately £23,809 before tax. This rate increase — a rise of 6.7% — continues the government's policy of above-inflation NLW increases, and it has important implications for salary sacrifice planning among higher earners.

Employers cannot allow salary sacrifice arrangements to reduce an employee's effective cash pay below the National Minimum Wage. This means that for a standard full-time employee, the maximum amount that can be sacrificed from gross salary is limited to the difference between their contractual pay and the NMW floor. With the NMW floor now at around £23,810, an employee earning £130,000 could theoretically sacrifice up to approximately £106,190 — though in practice, pension annual allowance limits (£60,000 standard) and other benefit caps will be the binding constraint for most people.

The NMW increase also affects the eligibility calculation for funded childcare hours. The minimum income threshold for the expanded 30-hour childcare entitlement is set at 16 hours per week at the NMW, which for 2025/26 means a minimum annual income of approximately £10,158. This modest floor ensures that most working parents qualify on the income side, while the £100,000 upper cap remains the real barrier for high earners. Workers on zero-hours contracts or variable income should be aware that HMRC assesses eligibility based on expected income over the coming three months.