Millions of the UK's lowest-paid workers face a stark reality check, with experts warning that an upcoming rise in the National Living Wage will be effectively wiped out by a combination of employer practices and government tax policy.
The Illusion of the Pay Rise
From 1 April 2026, the National Living Wage (NLW) for workers aged over 21 is set to increase from £12.21 to £12.71 per hour. On paper, this translates to an annual salary of £23,132 for a 35-hour week or £24,784 for 37.5 hours.
However, HR expert Kate Underwood has delivered a sobering analysis, stating the official figure is an "illusion" that fails in the real world of business. "The maths are brutal," she told Sky Money, explaining that extra, often unpaid, hours quickly dilute the real rate people earn.
Invisible Hours and the Real Rate of Pay
Underwood highlighted that unpaid overtime has become normalised, with employees staying late, logging on during holidays, or completing mandatory training in personal time. These "invisible hours" mean many are unknowingly working below the legal minimum.
She provided a stark example: a worker contracted for 37.5 hours but routinely working 45 hours would see their real hourly rate plummet to approximately £10.59 – significantly below the legal minimum they believe they are earning.
Colette Mason, an AI consultant at Clever Clogs AI in London, warned that technology often exacerbates the problem. "Many HR systems become accomplices to wage theft without anyone noticing," she said, criticising how unpaid overtime is often reframed as commitment or flexibility.
The Double Blow of Frozen Tax Thresholds
Compounding the issue is government fiscal policy. Chancellor Rachel Reeves has frozen income tax thresholds for a further three years until 2031. This means the point at which people start paying income tax remains stuck at £12,570, dragging more low earners into the tax net as their wages nominally rise.
The Institute for Fiscal Studies (IFS) think tank provided a powerful illustration of the impact. In 2015-16, a minimum wage worker needed to work 31 hours a week for a year to pay income tax. Due to the freezes and wage increases, that figure is projected to fall to just 18 hours by 2029-30 – the lowest level since the minimum wage was introduced in 1999.
The IFS concluded that this policy "reduce[s] how much of a minimum wage rise goes to workers," with more being recouped by the Treasury. Their analysis shows a full-time minimum wage worker will pay £137 more per year in tax due to the extended freeze, and £759 more than if no freezes had ever been implemented.
Both experts urge employers to accurately track real working hours, redesign roles with unsustainable workloads, and move away from a culture that celebrates excessive unpaid overtime. For workers, vigilance is key, and they are advised to use official government resources to check their pay calculations.
