Employment Law Update: What You Need to Know for 2025

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Employment Law Update

The Employment Rights Bill made 2024 a major year for employment law in the UK. In this article, Hardeep Kular takes a look at the evolving legal landscape and the key changes which employers and employees should be watching out for in 2025 as well as further anticipated changes in 2026.

Employment Rights Bill: Consultations to Begin

The Employment Rights Bill, published in October 2024, contained 28 significant reforms expected to significantly overhaul various employment practices. Accompanying this, the government released ‘Next Steps to Make Work Pay’, outlining plans for future longer-term reforms.

Extensive consultations will begin in 2025, with implementation projected for 2026 and beyond. These reforms signal substantial changes in HR processes, employee relations and a heightened focus on compliance and enforcement.

Equality (Race and Disability) Bill

The Equality (Race and Disability) Bill aims to ensure equal pay for ethnic minorities and disabled individuals by providing greater legal clarity to the Equality Act 2010, making it easier for employees to challenge pay inequalities if they suspect unfair treatment. For organisations with 250 or more employees, ethnicity and disability pay gap reporting will be made mandatory.

Gender Pay Gap Reporting

For organisations with 250 or more employees, gender pay gap reporting deadlines in 2025 remain critical. Public sector employers must report by 30 March 2025, using a snapshot date of 31 March 2024. For private sector and voluntary organisations, the deadline is 4 April 2025, with a snapshot date of 5 April 2024. Employers should ensure accurate data collection and analysis to meet these requirements.

Right to Switch Off

During 2025, the Government is expected to progress with the ‘right to switch off’ through a statutory Code of Practice. This will prevent employees from being contacted outside of working hours unless there are exceptional circumstances. Any proposals will require a consultation before implementation.

Neonatal Care Leave and Pay

The Neonatal Care (Leave and Pay) Act 2023 will come into force on 6 April 2025, introducing a new statutory entitlement for parents. Eligible employees will be able to take up to 12 weeks of paid leave for babies admitted to neonatal care.

To qualify, employees must have 26 weeks of service and earn at least £123 per week. Leave must be taken within 68 weeks of the baby’s birth and is additional to existing maternity, paternity and shared parental leave entitlements.

Paternity Leave (Bereavement) Act 2024

The Paternity Leave (Bereavement) Act 2024 became law in May 2024 although the regulations which need to be passed to bring this into force are still being awaited. The Act will allow paternity leave to bereaved fathers and partners in cases where the mother, or a person with whom a child is placed or expected to be placed for adoption, dies. This will be available from the first day of employment and look much like maternity leave, lasting up to 52 weeks.

Pensions (Extension of Automatic Enrolment) Act 2023

The DWP has confirmed it will launch a consultation on implementing the Pensions (Extension of Automatic Enrolment) Act 2023 which will extend automatic enrolment to younger workers and lower earnings thresholds.

Data (Use and Access) Bill

The Data (Use and Access) Bill endeavours to harness the power of data to boost the UK economy by £10 billion, including enabling and improving the effective use of data for the public interest.

This bill is currently in the second reading stage before it is passed for consideration.

Employment Tribunal Powers to increase or reduce any Protective Award

From 20 January 2025, Employment Tribunals will gain the authority to increase or reduce protective awards for non-compliance with collective consultation requirements by up to 25%. This discretion will apply where a tribunal determines there has been unreasonable failure to comply with a relevant Code of Practice, such as the Code of Practice on Dismissal and Re-engagement.

National Minimum Wage and Statutory Payments to Increase

From 1 April 2025, national minimum wage rates will rise as follows:

  • National Living Wage (21+): £12.21/hour
  • Aged 18-20: £10.00/hour
  • Under 18 and apprentices: £7.55/hour
  • Daily accommodation offset: £10.66

Statutory payments, including maternity pay and sick pay, will also increase in April 2025. Statutory sick pay will rise to £118.75 per week and statutory maternity and paternity pay, maternity allowance, adoption pay, shared parental pay and parental bereavement pay will increase to £187.18 per week. Lower Earnings Limit will increase to £125 per week. Employers will need to plan, budget and adjust payroll systems accordingly.

Employers’ National Insurance Contributions to Increase

From 6 April 2025, the following significant changes to employer National Insurance Contributions (NICs) will take effect:

  • Employer NICs will increase by 1.2 percentage points to 15%.
  • The Secondary Threshold will decrease to £5,000 annually until 2028, with CPI-linked increases thereafter.
  • The Employment Allowance will rise to £10,500 and become available to all eligible employers, regardless of size.

Changes to Rolled-Up Holiday Pay Legislation Come into Effect

From January 2025, employers with a January–March annual leave year can opt to implement rolled-up holiday pay for part-year and irregular hours workers. This will allow employers to spread holiday pay over the year, by adding an amount on top of someone’s normal pay. Employers should identify impacted workers, establish a suitable calculation method and maintain clear communication with affected employees.

Changes to Compensation

Increments to the statutory cap on a week’s pay, which is used to calculate statutory redundancy payments and basic awards for unfair dismissal, will be announced in early 2025 and take effect from 6 April 2025.

The re-evaluation of Vento bands, used to determine the amount of compensation awarded in discrimination cases, will also be announced at the same time.

Restrictions on Bankers’ Bonuses to be Reduced

Financial regulators withdrew the cap on bankers’ bonuses in 2023. There are now plans for a deregulation agenda including proposed policy reforms relating to restrictions on variable remuneration and the processes relating to Material Risk Takers. Whilst timings remain uncertain, these changes could come into play as early as the end of this year for performance periods beginning after a certain date.

Author: Hardeep Kular

As an employment law specialist with over three decades of experience, I bring a wealth of knowledge and a proven track record in handling both contentious and non-contentious employment matters.