Employment Law: what to expect in 2025

As we saw announced in October 2024 by the new Labour Government, over the next couple of years the political landscape for employment law is going to look significantly different when the reforms to the Employment Rights Bill begin to come into effect. So, what is on the horizon for 2025?

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Consultations on employment rights bill to begin

The employment rights bill includes 28 individual reforms aimed at boosting pay and productivity and improving job security and marks the first in a series of phases of the government’s delivery of its Plan to Make Work Pay.

The legislation removes the two-year qualifying period for protection from unfair dismissal, as well as introducing day-one rights to paternity leave, parental leave and bereavement leave. The measures also include the removal of the lower earnings limit and the four-day waiting period for statutory sick pay, and the introduction of flexible working as a ‘default’ right from day one for all workers, unless an employer can prove it is unreasonable.

Additionally, the bill aims to end “one sided flexibility” by giving workers the right to be offered a contract with guaranteed working hours if they work regular hours over a defined period, which was previously proposed to be 12 weeks. ‘Fire and rehire’ practices will also be banned, in all but exceptional circumstances.

The majority of these reforms will likely not take effect until 2026, the consultations on the measures are expected to begin in 2025.

Draft Equality (Race and Disability) Bill to be published

The draft bill, once enacted, will solidify the full right to equal pay for disabled individuals and ethnic minorities. Although the Equality Act 2010 is intended to guarantee equal pay in principle, this new legislation aims to simplify the process of filing equal pay by offering claimants greater legal clarity.

For organisations with over 250 employees, the bill will mandate ethnicity and disability pay gap reporting, building on the success of gender pay in highlighting wage disparities faced by women.

Currently, equal pay laws through three distinct equality clauses: one for sex equality, one for maternity equality, and one for pensions equality. It is expected that the draft bill will follow a similar structure, introducing separate clauses for ethnicity and disability.

For instance, the sex equality clause allows a woman (or man) to benefit from more favourable terms given to the opposite sex for performing the same role with equal work. Exceptions apply if the disparity is based on a non-discriminatory, material factors. This clear framework makes it easier for employees to challenge pay inequalities when they suspect unfair treatment.

 

Statutory code of practice for right to switch off

A measure which formed part of the government’s Plan to Make Work Pay with the aim to ensure remote work does not turn homes into “24/7 offices”, the ‘right to switch off’ was conspicuously absent from the employment rights bill.

The government instead plans to introduce the policy through a statutory code of practice, which will prevent employees from being contacted outside of working hours, except in exceptional circumstances.

The government’s Next Steps to Make Work Pay document does not specify when the code of practice will come into force, merely stating that “delivery of these types of commitments will take place alongside the employment rights bill’s passage and beyond Royal Assent”.

However, the non-legislative reforms could be introduced in 2025, earlier than the measures in the employment rights bill. It remains to be seen how [the right to switch off] interacts with rights provided under the Working Time Regulations and whether the UK would uplift compensation in claims for non-compliance.

Neonatal Care (Leave and Pay) Act 2023

This act, expected to come into effect in April 2025, will give parents up to 12 weeks of paid leave if they have babies who are admitted into hospital. The baby must be admitted up to the age of 28 days and have a continuous stay of 7 days or more. The act will have a minimum entitlement of one week, and will be in addition to other maternity, paternity and shared parental leave entitlements.

In order to qualify, an employee must be employed for a minimum of 26 weeks prior to the leave being requested and be earning an average of at least £123 a week. This mirrors the entitlement to maternity pay. The leave must also be taken in the first 68 weeks of the baby’s birth.

National Minimum Wage increase

The national minimum wage increase will come into force on 1 April 2025. The national living wage will increase by £0.77 to £12.21. For 18–20-year-olds, minimum wage will increase by £1.40 to £10.00 an hour, and for 16–17 year olds it will increase by £1.15 to £7.55 an hour.

These increases meet the remit set by the government, and the national living wage is expected to have the highest real value in the history of the UK’s minimum wage. The increase in the 18-20 year old rate narrows the gap between that and the national living wage, in anticipation of the adult rate being extended to 18 year olds in the future.

Statutory payments increase

Statutory payments are legal entitlements granted to employees in certain circumstances such as illness, maternity, paternity, or bereavement. From April 2025 several statutory payments rates in the UK will increase.

The statutory sick pay (SSP) will rise from £116.75 to £118.75 per week, with a qualifying threshold of £125 per week. Under the proposed Employment Rights Bill, sick pay could soon be payable from the first day of being ill, however this will likely not be in effect by next April.

The statutory maternity pay, maternity allowance, statutory adoption pay, statutory paternity pay, statutory shared parental pay and statutory parental bereavement pay will rise from £184.03 to £187.18 per week.

In addition, the lower earnings limit (the weekly earnings threshold for qualifying for all the above payments, except maternity allowance) will increase to £125 (up from £123), while the threshold for maternity allowance will remain at £30 per week.

National insurance increase for employers

From 6 April 2025, the government is implementing four significant changes to employer national insurance contributions (NICs).

Two of these changes represent substantial tax increases. The secondary Class 1 national insurance (employer) threshold will be lowered from £9,100 to £5,000 per year, while the main rate of secondary Class 1 National Insurance (employer) contributions will rise from 13.8 per cent to 15 per cent. Additionally, the rates for Class1A and Class1B employer contributions, which apply to taxable benefits-in-kind, will increase accordingly.

To partially offset these increases, the government is enhancing the employment allowance in two ways. It will become available to all employers, removing the current restriction limiting it to employers with an annual employer NICs liability of less than £100,000. Furthermore, the maximum amount employers can save through the allowance will increase from £5,000 to £10,500.

These changes are projected to generate net revenue of nearly £24bn in 2025-26, rising to approximately £26bn by 2029-30.

Additionally, the government plans to increase the Class 1 lower earnings limit for 2024-25, which is the threshold at which employees start paying national insurance.

These measures follow earlier cuts to employee national insurance introduced by the previous Conversative government, which reduced the main rate from 12 per cent to 10 per cent in January 2024 and further to 8 per cent in April 2024.

Pensions scheme Bill

The government announced on 13 November 2024, that it will be introducing a new Pensions Scheme Bill in 2025.

Key measures include automatic consolidation of small, deferred pension pots, a value-for-money framework for defined contribution (DC) schemes, and a requirement for occupational DC schemes to offer tailored retirement income solutions. The Bill also introduces commercial defined benefit (DB) superfunds to enhanced financial security for members.

These reforms align with the government’s ongoing pensions review, which focuses on boosting investment, growing pension pots, and tackling inefficiencies. While major changes to automatic enrolment are unlikely soon, the second phase of the review in late 2025 will explore contribution levels and retirement adequacy.

The government is also said to be considering expanding collective DC schemes, which pool investment risk and offer members a more stable retirement income, to unconnected employers.

Changes to tax rules will also impact pension benefits. From April 2027, most death benefits from registered pension schemes will be subject to inheritance tax, prompting employers to consider more tax-efficient options for death-in-service benefits.

In 2025, pensions dashboards will launch, allowing individuals to view all their pensions savings, including state pensions, on one platform. Initially, larger schemes with 100+ members will connect to this system, with public access expected later. These dashboards aim to improve transparency and empower individuals to better manage their retirement planning.