Employment law reforms: What businesses need to know for 2025 and beyond

As 2025 commences, we reflect on the legal developments that took place in 2024 and turn our attention to the significant employment law changes that await UK employers in 2025 and beyond.

2024 was certainly a landmark year in the world of UK employment law. With the new Labour government’s commitment to make the “biggest upgrade to workers’ rights” for over 40 years, several ambitious changes are set to be introduced in coming years.

This briefing note sets out the key employment law changes anticipated for 2025/2026.

Legislative changes

The legislative changes expected to come into force this year include:

20 January 2025: tribunal’s power to increase or reduce protective awards

The Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment of Schedule A2) Order 2025 came into force on 20 January 2025.

Employment Tribunals now have the power to increase or reduce any protective award they make by up to 25% if one of the parties has unreasonably failed to comply with a relevant Code of Practice – which shall include the new Code of Practice on Dismissal and Re-engagement. This means that if businesses ‘fire and rehire’ employees without meeting their collective consultation obligations, they could be liable for an elevated payout.

Whilst the new government has voiced its intentions to make further changes to the Code of Practice on Dismissal and Re-engagement, they have decided to continue with the previous government’s Code of Practice for the time being, with additional legislation expected in 2026 under the Employment Rights Bill.

Businesses should familiarise themselves with the provisions of the relevant Code to ensure they are followed when a potential dismissal and re-engagement situation arises.

6 April 2025: neonatal care leave and pay

The Neonatal Care (Leave and Pay) Act 2023 will come into force on 6 April 2025. The new statutory leave will grant parents, or others with a personal relationship to the child, the right to take up to 12 weeks of neonatal care leave, in addition to any existing parental leave entitlements, when a baby has received medical or palliative neonatal care for at least seven consecutive days within the first 28 days after birth.

Neonatal care leave will be a day-one right but, like maternity leave, there will be a 26-week qualifying service period for statutory pay.

Employees taking neonatal care leave will be entitled to identical rights and protections as those taking other forms of family-related leave, including protection from any discrimination or detriment for taking, or seeking to, take neonatal care leave.

We understand that the government also intends to publish website guides before 6 April and has asked Acas to publish guidance for employers once the legislation is in force.

In due course, businesses should consider implementing a Neonatal Care Leave and Pay Policy setting out details of the statutory right. They also need to be aware of the potential for an employee entitled to such leave to extend their paid leave for nearly a full year, should they choose to transition from maternity to neonatal care leave at the end of the statutory or enhanced maternity pay period.

Date unknown: paternity bereavement

The Paternity Leave (Bereavement) Act 2024 will, among other things, remove the usual 26-week minimum service requirement for fathers and partners to take paternity leave where the mother of a child – or the adoptive parent or intended parent in a surrogacy arrangement – dies shortly after the child’s birth. Regulations are required to bring the Act into force and the date for implementation remains unknown.

Date unknown: pensions automatic enrolment

The Pensions (Extension of Automatic Enrolment) Act 2023, enacted in September 2023, amends the Pensions Act 2008 which sets out the automatic enrolment framework. It paves the way for extending the automatic enrolment regime by reducing the minimum age for eligibility – the stated intention is to reduce it to age 18. It also looks to reduce – or remove – the lower end of the qualifying earnings band; the stated intention is for contributions to apply from the first pound earned. The date of implementation is not yet known as it will be subject to consultation on the approach to implementation and timing.

Pay and tax changes

There are several other notable pay and tax changes set to take effect in 2025, including:

1 April 2025: National Living Wage

The new rates effective from 1 April 2025 (which are intended to align with inflation trends) are as follows:

• National Living Wage aged 21 and over: 6.7% increase from £11.44 to £12.21 per hour
• National Minimum Wage aged 18 – 20: 16.3% increase from £8.60 to £10 per hour
• National Minimum Wage aged 16 – 17: 18% increase from £6.40 to £7.55 per hour.

Whilst the minimum wage increases provide noticeable benefits for workers, particularly younger workers, they are likely to present further financial challenges for businesses already facing existing economic pressures.

6 April 2025: statutory payment rates

The new statutory payment rates are as follows:

Statutory maternity, paternity, shared parental, adoption and bereavement pay will increase by £3.15 to £187.18 per week

Statutory sick pay will increase by £2 to £118.75 per week

The lower earnings limit will increase by £2 to £125; however, the maternity allowance threshold will remain at £30 a week.

Other rates: Other rates and limits, for example in respect of the statutory cap on a week’s pay used for calculating the basic award for unfair dismissal and statutory redundancy pay, are due to be announced in early 2025.

Employers should review their current rates of pay, particularly for apprentices and younger employees, to ensure they comply with the increased rates from the start of April and to minimise the risk of non-compliance fines and back-pay claims.

6 April 2025: National Insurance Contributions (“NICs”)

Several changes to tax and NICs were announced in the autumn 2024 budget, which are set to take effect from 6 April 2025, including:

• Employer’s NICs on an employee’s earnings will increase by 1.2% to 15%
• The threshold at which employers start paying NICs will reduce from £9,500 to £5,000
• In an attempt to protect small businesses, the employment allowance will be increased from £5,000 to £10,500 per year and the existing £100,000 limit will be removed.

These changes represent a significant shift in employer liabilities, particularly for small and medium-sized enterprises who will likely feel the effects of increased payroll costs.

Gender pay-gap deadline

Businesses with more than 250 employees as at the snapshot date of 5 April 2024 are required to report their gender pay gap data by 4 April 2025. See below for the reforms proposed by the new government in respect of pay gap reporting.

Government reforms

The Employment Rights Bill (“the Bill”)

The most significant employment law developments expected in 2025/2026 are those proposed by the government in the Bill. The Bill, published in October 2024 and amended at the end of January, introduces key legislative changes in line with Labour’s series of pre-election commitments to improve the lives of working people.

The Bill is currently working its way through parliament, with amendments being proposed along the way; but, once enacted, there is no doubt that it will reshape the landscape of UK employment law.

The Bill introduces 28 reforms on a variety of measures with the headline proposed changes including:

• Unfair dismissal: removal of the two years’ service qualifying period
• Trade unions: strengthening trade union rights and removing “unnecessary restrictions” on trade union activity
• Dismissal and re-engagement: significantly restricting the circumstances where employers are entitled to use ‘fire and rehire’ practices
• Zero-hour contracts: introducing requirements to offer guaranteed hours to zero-hours workers where they have worked regular hours over a defined period
• Flexible working: any refusal of a flexible working request must be reasonable
• Statutory sick pay: to become payable on day one of sickness.

We understand that it is the government’s intention for the Bill to become law before mid-2025. This does not mean that all reforms will be implemented immediately, as further consultation and regulations are required on the detail of many of the changes.

The government has already commenced a series of consultations on various key aspects of the Bill, some of which ended on 2 December 2024, but employers should expect to see further targeted consultations on the detail of the reforms and regulations being drip-fed from January 2025 onwards into early 2026.

On 12 February 2025, the House of Commons published a comprehensive Briefing on the Bill and its progress so far – available here. The Briefing summarises the Committee debates on the Bill, the witness evidence provided and key themes that led to significant debate. Of the 264 proposed amendments to the Bill, 149 of these were government amendments which have been agreed. All other amendments were opposed or withdrawn. Appendix 1 to the Briefing provides a useful summary of the amendments.

Further regulations, guidance and codes of practice are also likely to follow, setting out the practical steps for employers. The government anticipates that most reforms will take effect no earlier than 2026, with reforms to unfair dismissal no sooner than autumn 2026. Although, we understand that some provisions are due to come into force as soon as the Bill is passed and others two months after.

In the meantime, employers should familiarise themselves with the forthcoming changes and begin reflecting upon how these changes may impact upon their current working arrangements, policies and procedures.

The supporting ‘Next Steps’ policy paper

The government’s Next Steps policy paper, published at the same time as the Bill, is a commitment from the government to consult on specific matters in the future, with the intention of helping “more people to stay in work, improve job security and boost living standards”.

Some of the key proposals mentioned include:

• A legal right to switch off or disconnect outside of regular working hours
• The creation of a single status of “worker” by amalgamating the current “employee” and “worker” statuses
• The Equality (Race and Disability) Bill which is set to include an extension of the right to equal pay for ethnic minorities and the disabled and the introduction of ethnicity and disability pay gap reporting for organisations with more than 250 employees – we understand that the Bill is due to be published in draft in the 2024/25 parliamentary session
• Making parental leave a day one right
• The introduction of a “genuine living wage” by removing the current age bands
• A review of carers leave.

The implementation of a Fair Work Agency which will be entitled to inspect workplaces and enforce legal action against employers who have breached statutory rights.

Like the Bill, the proposed “Next Steps” are unlikely to come into force until at least 2026. Although these proposed changes will not be implemented for some time, employers should be mindful of the potential impact going forward.

Impact on employers

2025 and 2026 are set to be the most significant years for employment law changes in a generation and, as the government seeks to deliver on its “Plan to Make Work Pay”, there may be some further ‘surprises’ to come.

Employers should ensure that they are aware of the key incoming changes and keep an eye out for further details, particularly implementation dates and additional guidance, published at a later date. In due course, it will be important that current working arrangements, policies and procedures are reviewed and updated in line with the wave of legislative reforms.