Employer cost of minimum wage staff rises 20%, and 31% for 18-20s

The Centre for Policy Studies said on Wednesday that the annual cost of employing a full-time worker on the National Living Wage will reach £26,900 from April 2027, up 20% from £22,438 in 2024.

For 18 to 20 year olds the think tank puts the cost at £20,511 in 2027, against £15,652 in 2024, a rise of 31% or £4,859.

Daniel Herring, the CPS head of fiscal and economic policy, set the rise against prices: "Since 2024, the cost has increased by 20%, while inflation has been just 10% over that period."

In its full analysis the CPS gives the inflation figure as 10.1%, so the adult rise is about double inflation and the 18 to 20 rise about three times.

The National Living Wage for those aged 21 and over rises from £12.71 to £13.21 an hour in April 2027, the CPS table shows.

On its assumption of 35 hours a week for 52 weeks, that is an annual wage of £24,042, up 15% from £20,821 in 2024.

Employer National Insurance on that worker rises from £1,617 to £2,858, an increase of 77%, which accounts for the gap between the 15% wage rise and the 20% total.

The Low Pay Commission said that from 1 April 2025 the employer rate rose from 13.8% to 15%, while the threshold at which employers start paying fell from £9,100 to £5,000.

Employer National Insurance does not enter the 18 to 20 figure. The CPS uses National Insurance code M, which means no employer contribution on minimum wage pay.

The Low Pay Commission said workers under 21, and apprentices under 25, do not attract the higher employer contributions unless they earn more than £50,270 a year.

The 18 to 20 rate was set at £10.00 in April 2025, a rise of 16.3% that the commission described as the highest ever awarded to that age group.

The CPS table shows it rising from £10.85 to £11.27 in April 2027.

The CPS bases its figures on 35 hours a week. The Low Pay Commission used 38 hours for its own example, putting the 2025 cost of a 21 year old on the National Living Wage at £26,330, including £2,783 in National Insurance.

On the same 38-hour basis it said an 18 to 20 year old on the minimum wage was 10.6% cheaper than a worker aged 21 or over.

The CPS states that higher costs mean "fewer will be hired", pointing to falling vacancies and rising unemployment.

The Low Pay Commission said in its 2026 report that the evidence was not sufficient to say the large increases in the 18 to 20 rate had affected young people’s employment overall.

It pointed instead to supply-side factors such as ill health and demand-side factors such as falling vacancies, adding that young people are more likely to work in low-paying consumer-facing services hit by weak spending.

The commission recommended a rise of 8.5% for the 18 to 20 rate in 2026, citing youth labour market conditions. Herring said John Healey "deserves some credit for slowing the rise in the youth minimum wage".

The commission has proposed lowering the National Living Wage age threshold to 20 in 2027, with 18 and 19 year olds following in 2028 or 2029, subject to economic conditions and government policy.