Employment law 2025: Important changes for employers

UK employers should prepare for significant changes to the employment law landscape in 2025 that will impact workplace practices and policies.

Employment Rights Bill

The Employment Rights Bill includes 28 significant reforms that aim to completely overhaul employment law as we know it, enhancing workers’ rights. It is currently at the Committee Stage in the House of Commons, with a report expected to be sent from the Public Bill Committee to the House of Commons by Tuesday, 21 January 2025. Therefore, further developments are anticipated in the coming weeks.

While most of the proposed changes will not be implemented until 2026, consultations on several proposals are commencing this year. These include:

• A day one right to not be unfairly dismissed, eliminating the current two-year qualifying period. An initial nine-month period with a “light-touch” dismissal process is anticipated.
• An offer of guaranteed hours for zero and low-hours employees who regularly work over a defined period.
• Stronger rights to request flexible working, with employers obligated to accommodate requests unless impractical.
• A ban on fire and rehire practices on less favourable terms, except in cases where the business’s survival is at stake.
• Employers to be held liable for harassment by third parties.
• Reforms to collective consultation processes.

Holiday

Employers with a January–March annual leave year will finally be able to introduce rolled-up holiday pay for their part-year and/or irregular hours workers, should they want to.

ACAS Code of Practice on Dismissal and Re-engagement

From 20 January 2025, the 25% uplift for failing to comply with the statutory code will include protective awards for the first time. This applies when an employer proposes to change employee terms via dismissal and re-engagement, which affects 20 or more employees and triggers the need to consult collectively. 

Failing to do this can result in a protective award for all affected workers of up to 90 days’ pay. Where the employer has also failed to comply with the code, the employment tribunal could uplift that award up to 25%.

National Minimum Wage increases

From 1 April 2025, the National Minimum Wage and National Living Wage will rise significantly following recommendations by the Low Pay Commission. The new rates will be:

• Ages 21 and over: £12.21 per hour
• Ages 18–20: £10.00 per hour
• Ages 16–17 and Apprentices: £7.55 per hour

Employers should ensure compliance to avoid penalties, reputational damage, and potential criminal liability. This will involve reviewing the pay structure to ensure no inadvertent breaches, particularly in relation to salary sacrifice schemes or deductions that could take wages below the legal minimum.

Employers signed up to pay the Real Living Wage must increase pay to £12.60 in the UK and £13.85 in London by 1 May 2025 if they wish to retain their accreditation from the Living Wage Foundation.

Increases to statutory sick pay and other benefits

• From 6 April 2025, statutory sick pay will increase to £118.75 per week.
• From 7 April 2025, statutory maternity, paternity, adoption, shared-parental, and parental bereavement pay will rise to £187.18 per week.
• The lower earnings limit required to qualify for these payments will increase to £125 per week.

National Insurance contributions

From 6 April 2025, employer’s contributions on salaries above £5,000 will rise to 15%, impacting payroll expenses. 

Failure to prevent fraud

From 1 September 2025, when fraud is committed, large employers will be liable under a new corporate criminal offence of failure to prevent fraud - unless they can demonstrate that they had measures in place to prevent fraud by their employees or other associates. The guidance issued by the Home Office sets out the types of fraud covered by the offence and reasonable fraud prevention procedures that employers should undertake.

A large employer meets two or more of the following criteria:

• Turnover exceeding £36 million.
• Total assets exceeding £18 million.
• More than 250 employees

Employers should update employment contracts and policies to cover the prevention of fraud and ensure that failure to comply with the employer’s requirements in this regard will be treated as a disciplinary matter that could lead to dismissal. 

Employers will also need to conduct a comprehensive fraud risk assessment and monitor and review their fraud detection and prevention procedures.

Neonatal leave and pay

The Neonatal Care (Leave and Pay) Act 2023 is expected to come into force in April 2025, though regulations needed to do this still have to be put before Parliament. This will give employees a new right of up to 12 weeks’ leave and statutory pay when a baby they have responsibility for is in hospital receiving neonatal care. This is in addition to existing parental leave rights. 

Employers will, therefore, need to update their policies and payroll systems to reflect this new leave entitlement. 

Paternity leave for bereaved partners

A new right to paternity (bereavement) leave is expected to come into force in April 2025, although regulations are still needed to do this. This will give fathers or non-birthing partners access to paternity leave in cases where a mother, or a person with whom a child is placed or expected to be placed for adoption, dies. The leave is likely to operate in a similar way to maternity leave and last for up to 52 weeks.

Employers will need to ensure policies are updated to reflect this right and that managers are trained to handle sensitive cases. 

Key cases

Several high-profile cases could set new precedents this year, including: 

Higgs v Farmors’ School: This case concerns a Christian employee of a secondary school who claimed she was discriminated against when she was dismissed for Facebook posts which were perceived as anti-LGBT+.

The case is expected to set a precedent for future cases concerning the clash between an employee’s right to express gender-critical and other protected views and the fundamental rights of protected groups.

Thandi and others v Next Retail Limited: This claim has been brought by a group of Next employees who are claiming that store-based workers at Next (who are predominantly female) should be paid the same as warehouse operatives (who are predominantly male). They first succeeded in showing that the two jobs were of “equal value”, and, more recently, the ET ruled that several of the differences in pay could not be justified. 

The decision could have significant financial implications for Next. It sets a precedent that may influence similar claims across the retail sector, prompting employer to re-examine their pay structures to ensure compliance with equal pay legislation. 

Other trends in 2025

Duty to take reasonable steps to prevent sexual harassment: Following its introduction last October, this is likely to remain a current focus for businesses still getting to grips with risk assessments, enhanced training and ongoing initiatives particularly as further duties on employers are expected as part of the Employment Rights Bill.  

Diversity, Equity, and Inclusion: We have seen an increasing focus on supporting the development and performance of neurodiverse employees over the past year, which is expected to continue. 

AI in the workplace: Whilst the government has issued guidance on topics including responsible AI in recruitment, there remains a notable lack of legislation in this area as employers face the challenge of harnessing the potential of this new technology within a legal framework

Conclusion

We recommend that employers begin reviewing contracts and policies to ensure compliance with the forthcoming changes and consider budget adjustments to plan for increased payroll expenses due to wage hikes and higher national insurance contributions. This should be accompanied by training to address the new obligations. 

Staying informed and proactive will enable employers to adapt to these changes effectively, promoting a complaint and supportive workplace.