One of the biggest changes brought about by the Autumn Budget was a larger-than-expected increase to the National Living Wage (NLW) and National Minimum Wage (NMW).
For businesses that are already straining under the yoke of payroll compliance and considerations, the rises will likely increase the administrative burden.
We want to take a look at how the new wages might increase the complexity of payroll obligations.
How will rising wages make payroll more complex?
Whenever wages increase, there is a need to reassess the way in which payroll is handled.
This is because the thresholds for wages are dependent on ages and it is imperative that birthdays are accurately recorded to ensure that workers accurately age into higher wage thresholds.
From April 2026, the increase in employee wages includes:
As always, if you have a worker who turns 18 or 21 while employed with you, you will need to adjust their wages immediately lest you breach your payroll compliance.
The bigger challenge comes in the form of managing graduate employees.
There is currently some concern among business owners and working professionals that wages across a business will not increase sufficiently to reflect the levels of experience or qualification.
This is paired with the unusual situation that graduates now find themselves in, where even a full-time job on the lowest wage a 21-year-old can earn leaves them liable for student loan repayments on half of the student loan plans available.
Currently, the income thresholds for each plan type are as follows:
| Plan type | Yearly income threshold | Monthly income threshold | Weekly income threshold |
| Plan 1 | £26,065 | £2,172 | £501 |
| Plan 2 | £28,470 | £2,372 | £547 |
| Plan 4 | £32,745 | £2,728 | £629 |
| Plan 5 | £25,000 | £2,083 | £480 |
| Postgraduate Loan | £21,000 | £1,750 | £403 |
Given that the NLW now yields a full-time annual salary of £26,436.80, graduates on Plan 1 and Plan 5 cannot work full-time without having to pay back some of their student loans.
It was anticipated that those on Plan 5 would be on the hook, but the sharp increase sees Plan 1 pulled into scope as well.
If other wages rise in accordance with the NLW increase, it is possible that other graduate employees may find themselves pushed over the threshold for Plan 2 or even Plan 4.
This means that employers who have no previous experience of handling student loan repayments will need to keep an eye on their payroll records to ensure that all payments are being made accurately and in a timely manner.
This should be automatic, but having a watchful eye on things will help your employee avoid any trouble should things go wrong.
How can I stay payroll compliant going forward?
Given that employers are set to head into new territory with increasing employee expenses, it is vital that they seek expert advice as early as possible.
Our team are ready to help you manage your changing payroll responsibilities to ensure that you do not lose the goodwill of the workers who have got you this far.
Speak to our team today to take the stress out of payroll compliance.
