Autumn Budget 2026: New National Living Wage Rates and Employment Law Changes

The Autumn Budget 2026 confirmed a 50p rise in the National Living Wage. From 1 April 2027, the National Living Wage for workers aged 21 and over rises from £12.71 to £13.21, and every other minimum wage rate increases by the same 3.9%. The Treasury estimates that around 2.3 million workers will benefit.

Chancellor John Healey delivered the Budget on 28 October 2026, the first of the Burnham government. For employers, the National Living Wage announcement was the headline, but it was not the only employment measure. The Government confirmed that it will legislate to restrict non-compete clauses, committed £100 million to expanding apprenticeship support in England, announced new parental pay entitlements for self-employed fathers, partners and adopters, promised action on pay transparency in job adverts, and set out changes to Skilled Worker visa salary thresholds.

Our pre-Budget preview of 24 October referred to the Low Pay Commission's spring estimate of £13.18 for the rate needed to reach two-thirds of median earnings. The confirmed National Living Wage is 3p higher, although the Commission had revised its estimate of the benchmark rate to £13.44 by October. This article sets out the new National Living Wage and National Minimum Wage rates, explains when they take effect and what they will cost, and summarises the other employment law changes that employers should now prepare for.

National Living Wage and National Minimum Wage Rates From April 2027

The Government accepted the Low Pay Commission's recommendations in relation to the National Living Wage and the National Minimum Wage in full. The Commission submitted its advice on 23 October 2026, agreed unanimously by its members, and every rate rises by 3.9% from 1 April 2027. The increases are smaller than those that took effect in April 2026, when the National Living Wage rose by 4.1% and the 18 to 20 rate by 8.5%.

For a worker paid the National Living Wage for 35 hours a week, the rise is worth £17.50 a week, or £910 a year before tax, which is the figure the Treasury uses for a full-time worker.

The confirmed rate for the National Living Wage is 3p above the £13.18 central estimate in the Commission's spring consultation. Wage growth during 2026 came in ahead of forecasts, and by October the Commission calculated that £13.44 would have been needed to keep the National Living Wage at two-thirds of median earnings, the Government's stated benchmark. The Commission said it remains committed to that reference point when economic conditions allow, and that the recommended 3.9% rise exceeds forecast inflation for the period from April 2027 to March 2028.

The apprentice rate applies to apprentices aged under 19, and to those aged 19 or over during the first year of their apprenticeship. Once that year is complete, an apprentice aged 19 or over must be paid the rate for their age, which for those aged 21 and over is the National Living Wage. A 20-year-old in the second year of an apprenticeship must therefore receive at least £11.27 an hour from the first pay reference period starting on or after 1 April 2027.

Where an employer provides living accommodation, only the accommodation offset can count towards National Living Wage or National Minimum Wage pay. Any charge above the offset reduces the worker's pay for minimum wage purposes. From April 2027, a £15 daily charge would reduce reckonable pay by £3.47 a day.

The statutory National Living Wage remains well below the voluntary real Living Wage. On 15 October 2026, the Living Wage Foundation announced new rates of £14.10 an hour across the UK and £15.45 in London, each up 65p, leaving them 89p and £2.24 an hour above the April 2027 National Living Wage. Accredited employers have until 1 May 2027 to implement them.

Why the Age Bands Below the National Living Wage Are Staying

The Budget pauses progress towards paying 18 to 20-year-olds the full National Living Wage. The Government's remit still asks the Low Pay Commission to work towards extending the National Living Wage to 18-year-olds, and in each of the previous two years the youth rate rose much faster than the adult rate. This year both rise by the same 3.9%, so the gap between them stays the same in percentage terms.

The Commission's reasoning was that demand for young workers has slowed and the risks of an ambitious rise have increased. Youth unemployment remains above its Covid peak and at levels last seen in 2015, and vacancies, particularly in retail and hospitality, are lower than a year ago. The Commission has not seen robust evidence that recent National Living Wage increases have reduced employment for either young people or adults, but it judged that further large rises in the youth rate would not be risk free, and that a matching percentage increase was consistent with its remit to prioritise youth employment. It said there is still potential to lower the age threshold in future, especially for 20-year-olds.

From April 2027, a 20-year-old on the youth rate will earn £1.94 an hour less than a 21-year-old on the National Living Wage, compared with £1.86 today. Employers should remember that, under the National Minimum Wage Regulations 2015, the rate that applies is the one for the worker's age on the first day of the pay reference period, so a worker becomes entitled to the National Living Wage from the start of the first pay reference period beginning on or after their 21st birthday.

When the New National Living Wage Rates Apply and the Compliance Risks

The new National Living Wage and National Minimum Wage rates apply from the first pay reference period that begins on or after 1 April 2027. A worker paid by calendar month qualifies from 1 April. A worker whose monthly pay period runs from the 16th to the 15th qualifies from 16 April, even if both are paid on the same payday. The rates will be given legal effect by amending regulations, which are normally laid before Parliament early in the new year.

Paying the headline National Living Wage rate does not guarantee compliance. Pay for National Living Wage purposes is assessed by averaging pay across the pay reference period against every hour of working time, and HMRC enforcement regularly finds underpayment among employers who pay at or just above the National Living Wage.

A shop paying exactly £13.21 an hour will still underpay if it counts only rostered hours and requires staff to open the tills before their shift, attend compulsory training unpaid or stay behind to cash up. Deductions for required uniforms or tools, and charges for accommodation above the £11.53 daily offset, reduce pay for minimum wage purposes in the same way. Employers should check a sample of payslips against time records before April, including time spent on compulsory training and travelling between assignments.

The National Living Wage increase will also affect staff paid just above the minimum. A supervisor currently on £13.25 an hour would be only 4p ahead of a new starter on the National Living Wage from April 2027. Employers who want to maintain the gap between pay grades will need to raise those rates as well, so the true cost of April 2027 is likely to be higher than the statutory increase alone.

What the National Living Wage Increase Will Cost Employers

The Budget left employer National Insurance unchanged for 2027/28. Employers will continue to pay 15% on each employee's earnings above the £5,000 secondary threshold, and the Employment Allowance stays at £10,500 a year for eligible employers. For a full-time worker on the National Living Wage, the £910 annual pay rise adds a further £136.50 in employer National Insurance, taking the total cost of the increase to £1,046.50 a year. That figure is before any Employment Allowance and does not include pension contributions.

The position is different for younger staff. Employers pay no National Insurance on earnings up to £50,270 a year for employees under 21 or qualifying apprentices under 25, so the April 2027 wage increases will generally not add to their employer National Insurance bill while earnings remain below that threshold. Employers with a young workforce also benefit from the decision to raise the 18 to 20 rate by 3.9% rather than move it closer to the National Living Wage. Full alignment would have meant a rise of £2.36 an hour for those workers, rather than 42p.

Business Mileage Allowances and Benefits in Kind

The Budget also confirms changes to the approved mileage rates for employees using their own cars or vans for business. The existing 55p-per-mile rate for the first 10,000 business miles will remain, while the rate for mileage above that threshold will increase from 25p to 35p from 6 April 2027. An employee driving 12,000 qualifying business miles a year could therefore receive an additional £200 free of income tax if reimbursed at the approved rates. These rates determine how much can be reimbursed tax-free, rather than imposing a statutory obligation on employers to pay mileage expenses.

Employers also face a previously announced change to the reporting of benefits in kind. From 6 April 2027, company cars, vans, associated fuel and employer-provided medical benefits will have to be reported through payroll under HMRC's revised rules. Most other benefits will follow in April 2028, although employment-related loans and employer-provided accommodation remain outside that timetable. The changes are being taken forward through the Finance Bill 2026–27 and will require employers to review their payroll and reporting arrangements.

Non-Compete Clauses: Reform Confirmed, Detail Deferred

A non-compete clause restricts a former employee from joining a competitor or setting up a rival business for a period after leaving. The Budget confirmed that the Government will legislate so that these clauses are no longer a barrier to hiring for start-ups and scaling firms, and so that workers in the everyday economy are not prevented from moving jobs. The Budget document describes workers trapped by such clauses as often held back and unpaid, and makes clear that the reform will apply across the whole economy, not only to the start-up sector the Prime Minister highlighted when he announced the policy on 9 October.

The detail employers had been promised did not arrive. The Government will consult shortly on the wider use of restrictive practices, and will set out a detailed position in early 2027 before introducing legislation. There is no decision yet on whether reform will take the form of an outright ban, a statutory cap on duration or a ban below a salary threshold. Nothing has been said about whether existing clauses will be caught or whether employees must be paid during a restriction, and no start date has been set.

The options remain those canvassed in the Department for Business and Trade's working paper of November 2025, which closed on 18 February 2026: a statutory limit on duration (the previous Government had proposed three months), a limit that varies with employer size, a ban below a salary threshold, a hybrid of the two, or a complete ban. The Competition and Markets Authority's response favoured a ban below a salary threshold combined with a statutory limit above it.

Until legislation is in force, the common law of restraint of trade applies. An employer seeking to enforce a non-compete must show that it protects a legitimate business interest, such as confidential information or customer connections, and goes no further than reasonably necessary. When reviewing restrictive covenants, identify what the employee actually knows and how long that information retains its value. For a sales director, that may depend on how quickly confidential bid prices become commercially irrelevant after a tender closes. Employers should also review their reliance on long notice periods and garden leave, since the forthcoming consultation on wider restrictive practices may examine these too.

Apprenticeships and Youth Recruitment

The Budget provides £100 million across 2027/28 and 2028/29 to expand the Mayoral Apprenticeship Brokerage pilots from seven to all 14 Mayoral Strategic Authorities in England. The brokerage services help young people find apprenticeships and help employers, particularly smaller firms, create places. The Government also announced that apprentices must make up at least 3% of the workforce on all large government construction and infrastructure projects. Contractors bidding for public work should factor in the time skilled staff will spend supervising apprentices, and check how the requirement will be measured in tender documents, alongside the apprenticeship commitments already assessed under the revised procurement rules.

A second measure predates the Budget but was confirmed in it. Since 1 October 2026, employers in England that do not pay the apprenticeship levy can receive a £2,000 hiring payment for each new apprentice aged 16 to 24 whose training starts on or after that date. The apprentice must normally have joined the employer within the 90 days before training begins, and must still be employed when each instalment falls due.

The payment is made in two equal instalments, at day 90 and day 365 of the apprenticeship (or day 242 for programmes shorter than 12 months). The training provider claims it on the employer's behalf once eligibility has been confirmed and must pass it on within 30 working days, so the first payments are due from January 2027. The hiring payment can be combined with the existing £1,000 payment for apprentices aged 16 to 18, and sits alongside the rule, in force since 1 August 2026, that the Government funds 100% of training and assessment costs for apprentices aged 16 to 24 at non-levy employers.

Union Learning Fund

The Budget also confirms the return of the Union Learning Fund in England, with £15 million a year from 2027–28 to support union-led training and skills development. The Chancellor had announced the fund's reinstatement in September, so the Budget confirms the funding rather than introducing a new initiative. The scheme will allow trade unions to propose projects that help workers develop new skills, potentially providing further opportunities for employers and recognised unions to work together on workplace training.

Changes to Employee Share Schemes

The Budget also announced changes to tax-advantaged employee share schemes from 6 April 2027. The individual Company Share Option Plan (CSOP) limit will double from £60,000 to £120,000, while the exercise period will be extended from 10 to 15 years. The scheme was renamed Enterprise Management Incentives 2 (EMI2) on 28 October 2026, although it retains its CSOP name in legislation. Employers will also be able to offer the full individual limits under both the Company Share Option Plan and Enterprise Management Incentives schemes without the existing interaction between them.

Further changes will give employees 180 days, rather than 90, to exercise qualifying Enterprise Management Incentive options following certain disqualifying events. The reforms are intended to give growing businesses greater flexibility when using share incentives to recruit and retain employees.

Pay Transparency and Parental Pay

Two further measures were easy to miss. First, the Chancellor said the Government had heard calls for pay transparency in job adverts to help close the gender pay gap, and would act soon to make sure women are paid and promoted fairly. A consultation that closed on 27 October had proposed a duty on all employers to publish pay information in job adverts, and on 5 November the Prime Minister confirmed that the Government will legislate to make it a legal requirement. The scope of the duty and its start date have not yet been set out. Employers should review how pay is set and communicated at recruitment.

Second, the Budget extends parental pay for the first time to self-employed fathers, partners and adopters in Great Britain, and to employees who miss out on statutory pay because of a recent job change or an irregular work history. From April 2029, eligible fathers and partners will receive two weeks of support, and adopters up to 39 weeks, through a new Parental Allowance, currently worth up to £194 a week, in line with statutory paternity pay. The Treasury expects more than 150,000 additional parents a year to benefit. The measure does not change employers' obligations, but it closes a long-standing gap in the statutory scheme and adds to the pressure on employers to improve their own paternity policies.

Skilled Worker Visa Salary Thresholds

For employers that sponsor overseas workers, the Budget confirmed changes planned for spring 2027. The Government will implement the Migration Advisory Committee's recommendation to lower the occupation-specific going rate for Skilled Worker visas from the median to the 25th percentile of UK earnings for that occupation, reversing the increase made in April 2024. The general salary threshold, currently £41,700, will be uprated at the same time.

Under the Immigration Rules, a sponsor must pay the higher of the general threshold and the going rate for the job. A lower going rate will therefore help only where the going rate currently exceeds the general threshold; for many roles, the general threshold will continue to determine what a sponsor must pay. No exact date has been given, and the current rules apply until the Immigration Rules are amended.

The Budget also addresses the tax treatment of two costs employers must pay when sponsoring overseas workers. Legislation in the Finance Bill 2026–27 will exempt employer-paid Immigration Skills Charges and Certificate of Sponsorship fees from income tax as taxable benefits in kind, with effect for payments made on or after 28 October 2026. The exemption does not extend to the Immigration Health Surcharge.

Further changes are planned for highly skilled workers and international graduates. From 2027, the Government intends to allow certain highly skilled sponsored workers whose employment ends up to six months to find a new sponsor before their visas are curtailed, with the period depending on their previous employment. The High Potential Individual visa route will also expand to graduates of the world's top 150 universities, with a corresponding increase in its cap. Meanwhile, graduates of qualifying universities with strong compliance records and labour market outcomes will remain eligible for a two-year Graduate visa. The detailed eligibility rules and implementation dates have yet to be confirmed.

Conclusion

For employers, the Autumn Budget 2026 settled the most pressing question. The National Living Wage will be £13.21 from April 2027, and the decision to pause the alignment of youth rates means the overall bill will be lower than it might have been. Employers now have five months to update payroll, check working time and decide how far to protect pay differentials.

Much of the remaining Budget agenda still requires further legislation or detailed rules. Non-compete clauses will be restricted, salaries will have to appear in job adverts and Skilled Worker going rates are due to fall, but those changes are not yet in force. The common thread is a Government that wants workers to move between jobs more freely and employers to compete for staff more openly. Employers should therefore prepare for the proposed restrictions on non-compete clauses, the introduction of mandatory salary disclosure in job adverts and the consultation on notice periods and other restrictive practices.