2025 and beyond: Employment Law Changes
Several significant changes in UK employment law are set to impact SMEs in 2025 and beyond. Staying informed and preparing for these developments is crucial for you to ensure compliance and maintain smooth operations. Here is a quick recap of everything that should be on your radar, as a business leader:
1. National Minimum and Living Wage Increases
Effective from April 2025, the National Living Wage (NLW) for workers aged 21 and over will rise from £11.44 to £12.21 per hour. Additionally, the National Minimum Wage (NMW) for 18- to 20-year-olds will increase from £8.60 to £10.00 per hour. These adjustments aim to address the rising cost of living and move towards unifying wage bands.
Action Steps for SMEs:
Review Payroll Systems: Ensure that all employees are compensated according to the new wage rates.
Budget Adjustments: Plan for increased labour costs in your financial forecasts starting April 2025.
2. Changes to National Insurance Contributions
From April 2025, employer National Insurance contributions will see notable changes:
Rate Increase: The contribution rate will rise from 13.8% to 15%.
Threshold Reduction: The threshold at which employers start paying National Insurance will decrease from £9,100 to £5,000 per annum.
Employment Allowance: To support smaller businesses, the Employment Allowance will increase from £5,000 to £10,500, allowing many SMEs to offset these additional costs.
Action Steps for SMEs:
Update Payroll Processes: Adjust systems to reflect the new rates and thresholds.
Utilise Employment Allowance: Ensure eligibility and apply for the increased allowance to mitigate higher contributions.
3. Enhanced Employment Rights
The Employment Rights Bill, anticipated to pass in 2025 with most provisions effective from 2026, introduces several key changes:
Day-One Employment Rights: Employees will be entitled to statutory rights, including sick pay, parental leave, and bereavement leave, from their first day of employment.
Unfair Dismissal Protections: Protection from unfair dismissal will apply after a statutory probation period, expected to be between 6 to 9 months, replacing the current two-year qualifying period.
Zero-Hours Contracts: Employees on zero-hours contracts will have the right to request fixed-hour contracts based on their average hours over a 12-week period, which employers must honour.
Action Steps for SMEs:
Revise Employment Contracts: Update contracts to reflect new probationary periods and inform employees of their rights.
Assess Zero-Hours Arrangements: Consider transitioning to fixed-hour contracts where applicable and prepare to accommodate employee requests.
4. Statutory Sick Pay (SSP) Reforms
Starting April 2025, SSP will be payable from the first day of illness, removing the previous three-day waiting period. This change aims to provide immediate support to employees during sickness.
Action Steps for SMEs:
Update Sick Leave Policies: Ensure company policies reflect the immediate SSP entitlement.
Communicate Changes: Inform employees about the updated sick pay provisions.
5. Restrictions on Fire-and-Rehire Practices
The forthcoming legislation will largely prohibit the practice of dismissing and rehiring employees to change contract terms. Employers will need to demonstrate that such actions are unavoidable due to significant financial challenges and provide supporting evidence.
Action Steps for SMEs:
Review Contractual Practices: Evaluate current procedures for modifying employment terms and seek alternative approaches.
Document Financial Justifications: If contemplating contract changes, maintain thorough records to substantiate the necessity.
6. Strengthened Trade Union Rights
Employers will be required to inform employees of their right to join a trade union. This measure aims to enhance worker representation and collective bargaining.
Action Steps for SMEs:
Update Employee Handbooks: Include information about trade union membership rights.
Foster Open Communication: Encourage dialogue between management and employees regarding union participation.
Preparing for the Future
While many of these changes are slated for implementation in 2025 and 2026, proactive preparation is essential. SMEs should stay informed about legislative developments, participate in relevant consultations, and adjust policies and practices accordingly to ensure compliance and support their workforce effectively. If you have any questions or require any support with implementing new/updated policies. Please reach out to our CIPD-qualified People team by email.