Key employment law developments for early 2025
In 2025, employers face important changes to employment law, including enhanced penalties for failure to collectively consult, increased staffing costs, and the implementation of neonatal leave and pay. Employers should act now to prepare for change.
Key changes ahead
The first half of 2025 is due to bring significant legislative developments, reflecting a continued focus on workplace protections and compliance requirements. Here's an overview of the major changes and what employers should do to prepare.
20 January 2025: Protective awards and compensation uplifts
From 20 January 2025, Employment Tribunals will have the power to increase protective awards by up to 25% where employers fail to comply with the statutory Code of Practice on dismissal and re-engagement.
Protective awards are compensation payments made to employees where an employer fails to properly consult in collective redundancy situations involving 20 or more employees. The new penalty mechanism could significantly increase costs for employers, adding a potential 25% uplift to the existing maximum of 90 days' gross pay per affected employee.
What employers should do: Employers planning redundancies or changes to terms and conditions should review their consultation procedures to ensure full compliance with the Code of Practice. Legal advice may be needed to minimise the risk of costly claims.
21 January 2025: Employment Rights Bill progresses
The Employment Rights Bill is expected to introduce sweeping reforms to UK employment law. It is currently under detailed review in the House of Commons Public Bill Committee, which is expected to conclude its deliberations by 21 January 2025. The Bill is likely to introduce significant reforms, including enhanced protections for workers in areas such as dismissal and re-engagement and "day one" unfair dismissal rights.
While its final form is not yet certain, the Bill signals a broader push towards stronger employee protections. Employers should monitor developments closely and assess how potential changes might impact workplace policies.
What employers should do: Consider undertaking a policy review to ensure your organisation is prepared to adapt to likely changes. Keep an eye on updates to anticipate and manage risks effectively.
1 April 2025: National Minimum Wage increases
From 1 April 2025, the new National Minimum Wage (NMW) and National Living Wage (NLW) rates will take effect:
- Ages 21 and over: £12.21 per hour (6.7% increase)
- Ages 18-20: £10.00 per hour (16.3% increase)
- Ages 16-17 and apprentices: £7.55 per hour (18% increase)
The Government aims to align minimum wages with inflation and achieve its target of two-thirds of median earnings. Employers will need to adjust payroll systems and budgets to reflect the increases, which could lead to pay compression issues between junior and senior staff.
What employers should do: Review pay structures to ensure compliance, manage pay compression risks, and avoid penalties for underpayment.
6 April 2025: Employers’ National Insurance Contributions (NICs) increase
From 6 April 2025, employers will face higher NIC liabilities due to:
- A rise in the secondary Class 1 NIC rate from 13.8% to 15%.
- A reduction in the secondary NIC threshold from £9,000 to £5,000, making more earnings subject to NIC.
There will also be an increase in the Employment Allowance from £5,000 to £10,500, which will provide some relief for smaller employers.
These changes will increase payroll costs, particularly for larger employers or those with many employees earning above the reduced threshold.
What employers should do: Conduct financial modelling to understand the impact on payroll costs and explore how the increased Employment Allowance might offset these expenses.
April 2025: Neonatal Care Leave and Pay
The Neonatal Care (Leave and Pay) Act 2023 introduced new entitlements for parents whose newborns require extended hospital care. The current government has not yet confirmed whether it will bring the Act into effect in April 2025, but HMRC guidance suggests that implementation is likely.
The entitlement includes neonatal care leave, a day-one right to up to 12 weeks of additional leave, and statutory neonatal care pay for eligible employees. The finer details, including eligibility thresholds and pay mechanisms, will be clarified in forthcoming regulations.
What employers should do: Prepare to update family leave policies and train HR teams on how to accommodate these new rights. Keep monitoring for official confirmation and final guidance to ensure readiness.
Conclusion
The first half of 2025 promises significant legislative change, from increased redundancy-related penalties to enhanced family leave rights. Employers should proactively review policies, assess financial impacts, and prepare to implement these changes. Early planning will help organisations manage risks and maintain compliance in the evolving employment law landscape.