The National Living Wage went up to £12.71 per hour from April 2026 – a 4.1% increase on last year. But the headline rate only tells part of the story.
Once you factor in employer NIC at 15%, a lowered NIC threshold frozen until 2031, pension contributions, and expanded Statutory Sick Pay, most employers are looking at something closer to a 10% rise in total employment costs per worker, according to analysis by Forvis Mazars.
The Federation of Small Businesses found that a small firm with 9 staff on the NLW has seen its annual employment bill rise by £25,850 since January 2025. That’s a 12.9% increase in just over a year.
We’ve looked at the research and sector data to break down where these costs are landing hardest, what employers are doing in response, and what options are available.
The 2026/27 Rates
The NLW and NMW rates increased across every age band from 1 April 2026. The biggest rise in percentage terms was for 18 to 20-year-olds at 8.5% – more than double the main NLW increase:
| Age group | Hourly rate | Increase |
| 21 and over (NLW) | £12.71 | 4.1% |
| 18 to 20 | £10.85 | 8.5% |
| 16 to 17 | £8.00 | 6.0% |
| Apprentices | £8.00 | 6.0% |
For a full-time worker aged 21 or over on a 37.5-hour week, the NLW comes to roughly £24,785 per year. Once you add employer NIC (£2,968) and minimum pension contributions (£556), the true cost per employee is closer to £28,300 – about 14% above the salary alone.
The Bigger Picture: What Minimum Wage Research Shows
A YouGov survey of over 1,000 UK business leaders found that employment costs have risen 9.6% on average over the past year. The same survey found that a quarter of businesses have already frozen or slowed hiring. The ONS Business Insights survey from February 2026 paints a similar picture:
- 41% of businesses with 10 or more employees reported staffing costs had increased in the previous three months – up six percentage points on November 2025.
- 55% expected further increases in the next quarter.
- 33% of SMEs with 10 or more employees now identify the cost of labour as their primary barrier to growth.
Business leaders also rated the overall complexity of employment at 6.2 out of 10, up from 4.7 three years ago – a 32% increase that tracks closely with the recent wave of legislative and tax changes.
Sector by Sector: Where the Costs Are Landing
The impact isn’t spread evenly. Sectors with a high proportion of hourly, minimum-wage, or near-minimum-wage staff are absorbing the biggest cost increases – and the data shows it.
Hospitality
Hospitality has been the most vocal about the impact, and the numbers back it up. UKHospitality estimates that the wage increases alone will add £1.4 billion in costs across the sector. When the rates were announced, 70% of hospitality businesses said they planned to reduce employment as a result.
The problem goes deeper than just the NLW rate. Research from Stream found that the typical hourly rate in hospitality before the April increase was £12.26 – already below the new NLW floor of £12.71. That means the increase didn’t just affect the lowest-paid staff; it lifted the entire base.
Beyond the direct wage cost, there are a few other pressures that hospitality employers are dealing with right now:
- Wage compression: With most of the workforce clustered within pennies of the minimum, the gap between entry-level roles and supervisors has all but disappeared in many businesses.
- Youth employment pressure: The 8.5% rise for 18 to 20-year-olds was described by UKHospitality as higher than expected. For cafés, bars, and seasonal operations that rely on younger workers, the narrowing cost gap (now just £1.86 per hour between under-21s and over-21s, down from £2.21) is changing hiring decisions.
- Insolvencies still elevated: Hospitality insolvencies remain well above pre-pandemic levels, and the combination of NLW increases, employer NIC, and the end of pandemic-era business rates relief is adding further pressure.
Employment Hero’s payroll data shows that wages in retail and hospitality rose 18% in the run-up to April’s increase, but employment in those sectors fell by 1.1%. Higher pay and fewer jobs – exactly the pattern that was predicted.
Retail
The retail sector faces a similar squeeze. The British Retail Consortium puts the combined cost of NLW increases, employer NIC, and pension changes at around £5 billion per year for the sector. The survey data backs that up:
- 61% of retail CFOs were already planning to reduce staff hours, with 45% freezing recruitment entirely.
- Wage compression is acute: Stream’s research found the retail median hourly rate was £12.60 before April – just 11p below the new NLW. Most retail workers were already being paid within 31p of each other.
- Automation is accelerating: Many retailers are responding with self-checkouts, digital ordering, and reduced floor staff rather than absorbing the cost increases directly.
Social Care
Care providers face the same NLW and NIC increases as everyone else, but with much less room to respond. Local authority funding rates are set in advance and rarely keep pace with wage increases, meaning most care providers can’t simply pass the cost on. Skills for Care has consistently reported that the sector operates on margins of 1–3%, leaving almost no buffer for cost increases of this scale.
The expanded SSP rules, effective April 2026, add another layer. With SSP now payable from day one and no lower earnings threshold, care providers with large shift-based workforces face higher absence costs even if sickness rates stay the same.
The 18-to-20 Rate
Most of the attention has gone on the main NLW rate, but it’s the 8.5% increase for 18 to 20-year-olds that’s reshaping workforce planning in some sectors.
The government’s stated long-term goal is a single adult rate for all workers aged 18 and over. The gap is closing every year:
| Year | NLW (21+) | NMW (18–20) | Gap |
| 2024/25 | £11.44 | £8.60 | £2.84 |
| 2025/26 | £12.21 | £10.00 | £2.21 |
| 2026/27 | £12.71 | £10.85 | £1.86 |
For employers who have historically relied on the lower youth rate to manage costs, that arithmetic is changing fast. Within a couple of years, the differential may be negligible – and workforce planning needs to reflect that.
What Employers Can Do
There’s no way around paying the NLW – HMRC actively enforces it, with penalties of up to 200% of arrears per worker. But there are practical steps you can take to manage the overall cost.
Claim Employment Allowance
Worth up to £10,500 off your employer NIC bill for 2026/27. At the 15% rate, that covers roughly £70,000 of NIC-able earnings. For small employers with a handful of NLW staff, it can wipe out the NIC bill entirely. A few things to be aware of:
- It’s not automatic. You need to claim it through your payroll software each tax year.
- Sole-director companies can’t claim. If you’re the only director and only employee, you’re not eligible.
- Connected companies share one claim. Only one entity in a group can use it.
Review Your Pay Structure
If wage compression is becoming an issue, restructuring roles and pay bands is often more sustainable than applying blanket increases every April. Think about where the meaningful differentials need to sit and build your pay structure around those.
Check Your Compliance
HMRC looks at the effective hourly rate after deductions, not just the headline figure. There are a few common things that can push workers below the NLW without employers realising:
- Uniform or equipment costs deducted from pay.
- Mandatory training time not counted as working hours.
- Rounding in payroll software that rounds shift times down.
Use Salary Sacrifice Where Appropriate
Pension salary sacrifice reduces gross pay before NIC is calculated, saving both employer and employee NIC on the sacrificed amount. Just make sure remaining pay doesn’t fall below the NLW.
Budget for the True Cost
When planning headcount, use the full employment cost – salary plus NIC plus pension – rather than the hourly rate multiplied by hours. The difference between the two is roughly 14% for a NLW employee, and it adds up quickly at scale.
How Double Point Can Help
The NLW increase is one of several employment cost changes from April 2026 landing at the same time.
Between higher wages, employer NIC at 15%, expanded SSP, and the new employment law changes, the picture looks quite different from a year ago – and it’s worth making sure your payroll is handling all of it correctly.
At Double Point, we help businesses get their payroll right, claim the reliefs they’re entitled to, and plan for employment costs properly. If you’re not sure what your staff are really costing you, book a free consultation with us and we’ll help you work it out.