Pay rises - should you be offering pay above the legal minimum?

Legally, all UK businesses must pay the National Living Wage or National Minimum Wage (NLW/NMW) based on an employee’s age and apprenticeship status, regardless of the company’s size, turnover or industry. Failing to do so can result in significant fines from HMRC.

But as a business owner, have you ever considered paying above the legal minimum and thought about how it could benefit your business?

According to the Living Wage Foundation, more than 16,000 employers in the UK are voluntarily accredited to pay the higher ‘real’ Living Wage as of October 2025, which exceeds the statutory government National Living Wage. 

These employers include half of the FTSE 100, major household names, and thousands of SMEs.

The real Living Wage is independently calculated each year by the Living Wage Foundation based on the actual cost of living, including essentials such as housing, food and energy bills. Unlike the government’s National Living Wage, it reflects what people need to earn to maintain a basic but decent standard of living.

As of April, 2026 the National Living Wage for employees aged 21 and over is £12.71 per hour. 

The ‘real’ living wage is £13.35 per hour across the UK and £14.80 per hour in London.

What are the benefits of paying above the NLW/NMW?

So why do they do it? Well, there’s the obvious - it makes you look good.

Reputation in business is everything and it makes you look good to potential customers and employees. Not only that, but it makes you stand out among other businesses in your industry.

Although a big paycheck isn’t necessarily the most attractive thing about a job, it certainly helps. By paying your employees higher than the legal minimum, you’re helping to ensure they have fewer financial worries, which will hopefully mean they’re happier at work and will therefore lead to greater productivity - another benefit for your business.

If your staff are well looked after in their jobs, they are less likely to leave and look for something else, therefore your business has better staff retention and will spend less money on recruiting.

Offering a higher wage also makes your business incredibly attractive to potential new employees.

What should you consider?

Like any important business decision, it’s important to weigh up the pros and cons. Paying above the legal minimum wage isn’t always straightforward, and of course not all companies can afford to. For smaller businesses in particular, higher wages means increased payroll costs and some careful financial planning.

In the current economic climate, many businesses are recognising that supporting their employee’s wellbeing and offering competitive pay goes a long way towards creating a more motivated workforce and a stronger reputation within their chosen industry. 

While we would advise speaking to your accountant when it comes to the money side of the business, we’re here and happy to help when it comes to reviewing your pay structure, developing fair and competitive policies and ensuring your business remains compliant with employment legislation. 

If you’d like guidance on pay or wider HR matters, we provide HR support for small businesses, so don’t hesitate to get in touch to see how we can help.