Annual increases to minimum wage limits, statutory rates and compensation limits for 2026: what action do employers need to take?

No, it is not an April fools. New minimum wage thresholds, come into effect today. From 1 April 2026, new National Minimum Wage (NMW) and National Living Wage (NLW) rates come into force, increasing the legal minimum hourly pay for millions of workers across the UK. The changes follow recommendations from the Low Pay Commission, which the government accepted in full last autumn.

What are the new rates of pay?

The headline change is an increase in the National Living Wage for workers aged 21 and over, which rises by 4.1% to £12.71 per hour, up from £12.21 per hour. Younger workers also see above inflation uplifts:

• 18 to 20 year olds: £10.85 per hour
• 16 to 17 year olds: £8.00 per hour
• Apprentices: £8.00 per hour

The daily accommodation offset also increases to £11.10.

For a full time employee on the National Living Wage, the increase is worth around £900 a year in gross pay.

What do employers need to do?

As well as communicating these changes to those affected, all employers should make sure that their employees and workers are set to be paid in line with the increased rates, and ensure that all advertising materials, contractual documentation and policies and procedures are updated as necessary to reflect the changes. 

Employers must ensure that the new rates are applied from the first pay reference period starting on or after 1 April 2026. This includes checking that any deductions (for example, uniforms or accommodation) do not take pay below the legal minimum.

Failure to comply can result in significant penalties, including repayment of arrears, financial fines and public naming by HMRC.

Wider impact

The Low Pay Commission has emphasised that the 2026 uplift is intended to provide a real terms increase for lower paid workers while remaining sustainable for employers. Around 2.7 million workers are expected to benefit from these changes. 

However, businesses in sectors with high concentrations of minimum wage roles, such as hospitality, facilities, retail and social care, continue to face pressure from rising employment costs, business rates and wider economic uncertainty. This is particularly challenging given the current worldwide state and the upcoming changes introduced by the Employment Rights Act 2025, such as those affecting flexible and zero hours contracts, particularly on guaranteed hours and compensation for short notice cancellation of shifts. 

The current lack of uncertainty around the level of guaranteed hours to be given and sustaining this for some sectors is creating a challenge. Business models can adapt, but only when they know what the parameters are. We await further detail and progress during the consultations. 

Employers should review pay structures promptly and consider the knock on effects for pay differentials, overtime rates and salary linked benefits.

Statutory rates 

As well as the changes to the National Minimum Wage and National Living Wage, a host of increases have been proposed that will also see statutory rates rise from 6 April 2026. These include the following:

• Statutory sick pay is increasing to £123.25 per week, previously £118.75.
• Statutory maternity, adoption, paternity, shared parental and parental bereavement pay is increasing to £194.32 per week, previously £187.18.
• The statutory limit on one week’s pay for various purposes, including statutory redundancy pay, will increase to £751, previously £719.
• Statutory guarantee pay will increase to £41 per day, previously £39. 
• The statutory cap for compensatory awards in unfair dismissal claims will increase to £123,543, previously £118,223. 

(Note that the statutory cap for compensatory awards will be removed come January 2027 as one of the changes to be implemented by the Employment Rights Act 2025). 

What action do employers need to take?

As well as communicating these changes to those affected, all employers should make sure that their employees and workers are set to be paid in line with the increased rates, and ensure that all contractual documentation, policies and procedures are updated as necessary to reflect the changes. 

Compensation for injury to feelings

There is also an annual increase to the Vento bands, which are used by the Employment Tribunal to determine financial awards for injury to feelings in claims such as discrimination or harassment. The parameters of each Vento band is increasing as follows:

If you would like any assistance with reviewing or updating employment contracts, policies or procedures to incorporate these changes, please contact our employment team.