The future of tax and employment law is set to change in 2025
Businesses and directors need to be aware of the changes to employment law and specific taxes coming into effect on April 1st.
National Insurance Contributions
In the 2025/26 tax year, employers will pay 60% more in National Insurance for a new employee on minimum wage.
Employer National Insurance Contributions (NICs) on full-time employees will rise to £2,583 from £1,617.
In 2024, a full-time minimum wage worker earned £20,821 and paid £1,650 in income tax. On April 1st, the same worker will earn £22,222, an increase of £1,401.
This will also increase income tax by 17% to £1,930.
With a total net salary of £20,292, the worker will have £1,401 more to spend than he or she did in 2024, up from £19,171.
Consequently, each employee at this level will cost firms a minimum of £24,806, according to a CPS analysis.
Chancellor Rachel Reeves told MPs sitting on the Treasury Committee that after the changes were announced in the Autumn Budget that: “This was a once-in-a-parliament reset.
“I won’t write five years’ worth of Budgets now, but we have drawn a line and put the public finances on a clear trajectory.”
In response to a question about rising employer NIC rates, Reeves said, “Businesses are creative and show ingenuity, and businesses will improve productivity.
“Small businesses struggle most with employer National Insurance so we increased the employment allowance to £10,000 for a million small businesses so they will be paying no more or no less than they were before.”
In this year's employment changes, there are a number of updates to be aware of.
First tabled in October 2024, the Employment Rights Bill will bring several significant changes to UK law. Some of these take effect this year, and while the majority won't take effect until 2026, you and your business should be aware of them.
For employers operating a January-March annual leave year, rolled-up holiday pay will be available to part-year and/or irregular hours workers beginning in January.
A further reform taking effect is the extension of the 25% uplift to include protective awards once the Code of Practice on Dismissal and Reengagement is complied with.
As of January 20th, employers proposing to change employees' terms through dismissal and re-engagement, which affects 20 or more employees, must consult collectively.
A business could be awarded 90 days' pay if it fails to do this fully or partially. An employment tribunal may increase an award by up to 25% if an employer does not comply.
The statutory wage rate
As of April 1st 2025, the following new statutory rates will be in effect:
National Living Wage for over 21s rises 6.7% to £12.21 per hour
National Minimum Wage for 18-20 year olds rises to £10 per hour
National Minimum Wage for 16-17 year olds and Apprentice Rate rises to £7.55 per hour
Statutory Sick Pay rises to £118.75 per week
Statutory Maternity Pay and other family related leave pay rises to £187.18 per week
The Lower Earnings Limit rises to £125 per week
The regulations necessary for neonatal care leave and pay are still awaiting Parliament's approval although they are expected to come into force in April.
As a result of the Neonatal Care (Leave and Pay) Act 2023, employees now have a right to time off work when babies they are responsible for are receiving neonatal care in hospitals. It was planned to make neonatal care leave available to eligible employees between 2024 and April 2025, according to the previous government that introduced the measure. The reason for this is that HMRC and commercial payroll generally require about 18 months' notice for statutory payment administration changes.
In light of the recent introduction to parliament of regulations relating to Statutory Neonatal Care Pay, which will take effect in April 2025, it's expected that the regulations establishing the rights will be released to employees soon.
Living Wage
It's not a legal requirement, but employers who pay the "Real Living Wage" must raise their hourly pay to £12.60 (£13.85 in London) to maintain their Living Wage Foundation accreditation.
2025 will bring further changes
The law will also change this year, giving staff new rights that employers need to be aware of.
Several regulations will be passed to bring the Paternity Leave (Bereavement) Act 2024 into force by April 1st 2025, to coincide with the start of the new financial year. The act was passed on May 24th 2024 and became law on May 24th 2024.
Fathers (or non-birthing partners) are entitled to paternity leave in cases where a mother or an adoption partner dies. The leave is expected to be similar to maternity leave, lasting up to 52 weeks and available from the beginning of employment.
Early in December 2024, Parliament introduced the Children's Wellbeing and Schools Bill.
Children and Young Persons Act 1933 provisions regarding the employment of children are proposed to be amended. Under the Education Act 1996, these proposals will affect children in England under compulsory school age. In the school year that a child turns 16, that child remains of compulsory school age until the last Friday in June.
The proposals include requiring all children employed to work in England to have a permit issued by a local authority. Local authorities currently require children to have work permits in most, but not all, cases.
Similarly, children in England will be able to work the same number of hours on Sundays as they do on Saturdays. For 14- and 15-16-year-olds, children are allowed to work two hours on Sundays and five hours on Saturdays.
Furthermore, children will be able to work until 8pm after school (currently 7pm). There are no immediate actions required in light of the fact that the Bill has only been read once in Parliament.
What's coming up
Despite ambitious and expensive plans to overhaul employment law, no timetable for implementation has been set out in draft legislation currently being debated in both Houses.
From the government's "Plan to Make Work Pay" plan to grow the economy and raise living standards, 28 commitments remain unfulfilled.
The following areas are included:
Enhancing existing rights including sick pay entitlement
Pay
Time Off
Contracts including zero hours
Equality and harassment
At the earliest, employers should remain informed and engaged about any changes that will become law before they do, even if more changes are unlikely until 2026.
This could be a pivotal year for your business, even though 2025 is just getting started.
Contact Zyla Accountants for support with your accounting and tax requirements.