Reforms in Employment Law UK – Preparing Employers for 2025 and 2026
Significant reforms in employment law in the UK are on the horizon for 2025 and 2026, and they’ll transform how employers manage worker rights and responsibilities. These aren’t minor tweaks; they’re substantial shifts that enhance employee protections, reshape employer obligations, and demand your attention.
But why all the fuss now? The upcoming legislation addresses long-standing employment concerns, from closing loopholes around zero-hour contracts to increasing transparency in dismissal practices. Employers who think ahead will be better positioned to navigate the evolving workplace landscape.
So, what exactly are these changes? And how can your business stay one step ahead? This article breaks down the key legislative updates, how they’ll impact your business operations, and what steps you need to take now.
Legislative Changes Coming in 2025
Significant legislative changes in UK employment law kick in during 2025, reshaping everything from employee leave entitlements to pension obligations. Here’s a concise breakdown of the key reforms and how they’ll impact your business operations moving forward.
Tribunal Powers (20 January 2025)
Since 20 January 2025, UK employment tribunals have gained enhanced authority to adjust compensation for protective awards by up to 25%. Specifically, tribunals can increase or reduce awards if either party unreasonably breaches the new statutory Code of Practice on Dismissal and Re-engagement (or any other applicable code).
This means employers failing to follow proper collective consultation processes risk substantial financial penalties. Likewise, employee representatives who disregard their consultation obligations face similar risks. Originally expected alongside the Code in July 2024, this legislative adjustment aligns with broader employment reforms beginning in early 2025.
Neonatal Care Leave and Pay
From April 2025, employees in the UK have a new right up to 12 weeks of paid leave if their newborn needs specialist neonatal care. Known officially as neonatal care leave pay UK, this reform recognises the intense pressure placed on parents whose babies require additional medical support after birth. Here’s the deal: leave entitlement applies from the first day of employment, ensuring immediate support for parents navigating the challenges of neonatal care. However, statutory neonatal care pay kicks in only after 26 weeks of continuous service, matching existing family leave policies.
This significant development applies specifically to parents whose infants require a hospital stay of seven consecutive days or more due to neonatal care. Employers, therefore, need clear, robust policies detailing how this leave will operate within their organisations.
Early preparation includes arranging adequate staffing coverage and ensuring managers understand the new entitlements. Without these proactive measures, businesses risk disruption and potential non-compliance.
Paternity Bereavement Leave Changes
Upcoming changes to paternity bereavement leave mean the previous 26-week qualifying period is removed. From 2025, employees become immediately eligible for leave if their partner tragically passes away shortly after childbirth. This vital shift recognises the profound emotional and practical impact of losing a partner during such a critical life event. It aligns with broader compassionate practices in UK workplaces, ensuring bereaved parents receive support exactly when needed without arbitrary service-length restrictions.
Pay and Tax Updates in 2025
The upcoming pay and tax reforms in 2025 and 2026 introduce significant financial obligations for employers across the UK. Changes to statutory pay, increased national insurance contributions, and an uplift in the national living wage mean businesses must proactively prepare to manage payroll adjustments effectively and remain compliant with new legislation.
National Living Wage Increase
The national living wage increase 2025 will significantly increase minimum hourly rates across multiple age groups from April 2025. Employees aged 21 and over will see their minimum hourly pay rise to £12.21, a notable 6.7% increase. Younger employees will benefit even more substantially, with the wage for those aged 18–20 rising 16.3% to £10 per hour, while those aged 16–17 receive an impressive 18% increase, reaching £7.55 per hour.
These adjustments substantially raise payroll expenses, placing considerable financial pressure on businesses, especially those with large workforces or tight margins. Companies must begin strategic budget forecasting well before implementation to navigate these increased obligations smoothly. Reviewing financial plans, adjusting pricing strategies, and optimising workforce planning are now essential, not optional considerations.
Moreover, businesses that effectively prepare for these higher wage costs can minimise financial disruptions and remain competitive in attracting and retaining talent. Early and transparent communication of these changes to employees will foster trust and maintain morale during this adjustment period.
Statutory Payments Increase
From April 2025, statutory payments in the UK, including maternity, paternity, and sick pay, will notably rise, directly affecting business payrolls. Specifically, weekly maternity, paternity, and other family-related statutory pay rates will increase to £187.18, marking an uplift of £3.15 per week. Additionally, statutory sick pay (SSP) climbs to £118.75 per week, representing a weekly increase of £2.
These enhanced statutory pay rates mean employers face increased payroll costs. Businesses must, therefore, carefully integrate these higher expenses into their annual financial and budgeting forecasts. Failing to anticipate and plan for these changes can lead to budget shortfalls or compliance breaches, both costly scenarios to avoid.
Furthermore, HR systems and policies require immediate attention to ensure seamless implementation. Clear internal communications about these changes will help staff understand their entitlements and reinforce transparency. Proactively managing these updates minimises administrative disruption, ensuring smoother transitions when changes occur.
Changes to National Insurance Contributions
From April 2025, UK employers will face significant adjustments to national insurance contributions (NICs). Employer NIC rates rise notably, jumping to 15%, a 1.2% increase. Simultaneously, the threshold for employer payments sharply reduces, dropping from £9,500 to just £5,000. These two changes will considerably elevate employer NIC liabilities, placing new financial pressures on businesses across various sectors.
Given this shift, companies must re-evaluate their payroll budgets and broader financial strategies. Adjustments within payroll systems are essential to ensure accurate calculations, timely reporting, and compliant payment of these higher NICs. Neglecting early implementation risks costly errors, administrative confusion, and potential penalties for non-compliance.
In practical terms, proactive steps like training payroll staff, updating payroll software and communicating these changes internally become essential actions, not optional extras. Early compliance planning helps businesses mitigate financial stress, maintain regulatory adherence, and smoothly adapt to these substantial NIC reforms before they take effect.
Employment Rights Bill: Key Changes in 2025 and 2026
The Employment Rights Bill introduces landmark reforms that will reshape the UK workplace throughout 2025 and 2026. These include enhanced protections against unfair dismissal, strengthened union rights, tighter restrictions on employment practices, and expanded flexible working rights. The bill significantly redefines employer responsibilities and employee entitlements. Employers must act swiftly to remain compliant.
Unfair Dismissal Updates
Under the new Employment Rights Bill, the traditional two-year qualifying period required to claim unfair dismissal in the UK will disappear. Instead, employees will have immediate protection from unfair dismissal from day one of their employment. This change dramatically shifts power dynamics in employment relationships, giving workers stronger safeguards and significantly narrowing employer flexibility around early-term dismissals.
Detailed documentation of performance reviews, warnings, and disciplinary actions will become even more essential. Managers should receive thorough training to understand the new criteria for lawful dismissals and maintain comprehensive records to justify employment decisions when the legislation is enacted.
Failure to comply with these new standards exposes businesses to a heightened risk of legal disputes and costly tribunal claims. Early and proactive action, including policy updates, staff training, and robust record-keeping, reduces these risks substantially. In short, companies must elevate their dismissal processes to ensure fairness, transparency, and legal compliance when this legislation is enacted.
Strengthening Trade Union Rights
Upcoming reforms will significantly enhance the role and influence of trade unions in workplaces nationwide. The Employment Rights Bill boosts collective bargaining rights and union representation, empowering unions to negotiate pay, benefits, and working conditions more effectively. Therefore, employers must recalibrate their negotiation strategies and proactively engage with unions to reach mutually beneficial agreements.
Additionally, businesses face stricter obligations regarding employee consultations, particularly around decisions affecting workforce structures, terms of employment, and significant operational changes. Transparent, good-faith discussions with trade union representatives become mandatory rather than merely advisable. Companies failing to consult effectively risk disputes, industrial action, and legal consequences.
Given these reforms, fostering strong, positive union relationships moves from a valuable strategy to an absolute necessity. Employers should train managers on effective union interactions, improve internal communication channels, and establish clear frameworks for ongoing consultation. By prioritising collaborative dialogue and proactive negotiations, businesses meet compliance standards and build healthier, more productive workplace relationships.
Restrictions on Fire and Rehire Practices
The controversial practice known as fire and rehire faces tighter restrictions under the Employment Rights Bill. If enacted, employers must demonstrate clear and justifiable business reasons before dismissing and re-engaging staff on less favourable terms. This clampdown addresses growing concerns over companies using dismissal threats to impose reduced pay or worse working conditions.
To comply, businesses will need to drastically improve transparency and maintain rigorous documentation proving the necessity of such drastic employment measures. Any dismissal and re-engagement decision must be backed by detailed evidence of financial pressures, restructuring needs, or operational challenges. Companies risk tribunal action, costly legal challenges, and substantial penalties without this..
Zero-Hour Contract Regulations
The Employment Rights Bill seeks to substantially change zero-hour contract regulations. If enacted, zero-hour workers will have the legal right to request guaranteed minimum working hours after a defined period of regular employment. This shift addresses longstanding concerns about job insecurity and inconsistent earnings associated with these flexible contracts.
Employers must prepare to offer fixed-hour contracts proactively once employees meet specific eligibility criteria, ensuring compliance with the proposed new law. Human Resources teams will be crucial, closely monitoring working patterns to identify when workers qualify for guaranteed hours. Accurate tracking of employee work history becomes vital to maintaining compliance and preventing legal disputes.
Comprehensive documentation updates, including employment contracts, employee handbooks, and internal policies, will be required to reflect these changes. Businesses failing to act promptly face heightened legal and reputational risks. Early preparation, clear communication, and meticulous record-keeping will ensure a smooth transition, helping employers manage the shift towards more secure employment conditions.
Expansion of Flexible Working Rights
Under the Employment Rights Bill, significant reforms to flexible working rights will take effect if this proposed legislation is enacted. Employers must provide more substantial, clearer justifications for refusing flexible working requests. Simply put, turning down a request without well-documented reasons will no longer be acceptable. Businesses will face heightened scrutiny, increasing the risk of legal challenges if refusals appear unfair or inadequately supported.
Here’s the upside: Expanding flexible working can notably boost productivity, employee morale, and retention. Employees granted flexible arrangements tend to feel valued, less stressed, and more motivated, ultimately benefiting business performance. Companies that embrace these reforms early can transform compliance into a strategic advantage, positioning themselves as desirable employers in a competitive labour market.
Government’s ‘Next Steps’ Policy & Future Employment Reforms
The UK government’s ‘Next Steps’ policy outlines further ambitious employment reforms beyond 2026, reflecting a deeper commitment to fairer, more inclusive working environments. A pivotal change involves adopting a living wage without age bands, removing current discrepancies that see younger workers paid less for equivalent work.
Equal pay reporting obligations may also become mandatory for organisations with 250+ employees, extending beyond gender to include race and disability. This heightened transparency demands careful data collection, reporting accuracy, and a proactive approach to pay disparities.
Lastly, establishing a Fair Work Agency marks a significant shift in employment law enforcement. This agency will rigorously monitor workplace compliance, enforce legal standards, and hold businesses accountable for employment rights violations. Employers must ensure meticulous compliance strategies are in place, as the agency’s oversight will significantly increase legal and reputational risks for non-compliant companies.
Actions Employers Must Take to Stay Compliant
Employers will face substantial changes in employment law over the coming years, so strategic action isn’t just smart, it’s essential. First, businesses must focus on robust financial planning to navigate increased wage bills, higher statutory payments, and rising national insurance contributions. Organisations risk unexpected costs that can damage operational stability or profitability without careful budget forecasts and timely financial adjustments.
Next, companies should urgently revisit employment policies, contracts, and internal procedures. Comprehensive updates to employee handbooks, sick leave and pay policies, flexible working arrangements, and dismissal protocols will be crucial to staying legally compliant. Training HR and management teams thoroughly on these legislative reforms becomes vital. After all, policies only succeed if teams understand precisely how to implement and manage them effectively.
Finally, partnering with specialised HR consultants, such as HR Team, provides customised, pragmatic compliance support. Expert consultants can quickly identify potential risks, help draft legally robust policies, and provide tailored training for your organisation’s needs. Collaborating with HR specialists ensures businesses stay ahead of legislative curves and can adapt quickly when laws change. Proactive compliance planning saves businesses from costly legal complications, protects their reputation, and creates workplaces where employees feel secure and valued.
Prepare Your Business for Employment Law Changes with HR Team
The upcoming UK employment law reforms in 2025 and 2026 will significantly enhance worker rights and redefine employer responsibilities. From expanded leave entitlements and increased statutory payments to stricter dismissal practices and improved union rights, businesses face new compliance standards. Strategic planning, policy updates, and staff training are essential actions for companies aiming for a seamless transition.
HR Team provides practical, customised solutions to help your business stay compliant, manage new obligations smoothly, and maintain workplace efficiency. Our expert consultants specialise in employment law, ensuring your organisation is prepared, proactive, and fully aligned with the latest legislative changes.
Contact HR Team today for tailored HR consultancy and compliance support, and join our expert-led webinars for detailed guidance on effectively navigating employment law reforms.
FAQs on UK Employment Law Changes 2025-2026
What is fire and rehire?
Fire and rehires happen when employers dismiss and re-engage employees under less favourable terms. Companies use this practice to reduce costs or restructure contracts, but it often triggers disputes and legal actions. The Employment Rights Bill will reform the law on fire and rehire practices and these practices will face increased scrutiny and tighter regulations.
Is fire and rehire legal?
Fire and rehire practices are legal but face significantly stricter conditions under The Employment Rights Bill. Employers must justify dismissals and demonstrate genuine business necessity for contract changes. Companies failing to provide clear justification risk severe legal penalties, as reforms aim to protect workers from unfair treatment.
What is a zero-hour contract?
A zero-hour contract offers employment without any guaranteed minimum hours. Employees work only when employers require it, offering flexibility. Upcoming 2025 regulations will strengthen protections by ensuring zero-hour workers gain entitlement to guaranteed minimum working hours after consistent employment periods.
Do you have to give notice on a zero-hour contract?
Employees must give notice on zero-hour contracts only if explicitly required by their contract terms. Employers should clearly state notice obligations within contracts. If no requirement is included, employees generally can leave without notice. Clear contractual communication helps avoid misunderstandings or disputes about notice periods.
What is flexible working?
Flexible working allows employees to adapt their working patterns, including location, hours, or days, to suit their circumstances better. Examples include remote working, flexible start and end times, or job sharing. From 2025, employers must robustly justify any refusal of flexible working requests to remain compliant.
What is statutory sick pay?
Statutory Sick Pay (SSP) is mandatory for eligible employees when illness prevents them from working. Employers are legally required to provide SSP once eligibility criteria, including continuous employment of at least 13 weeks, are met. Starting in 2025, SSP becomes payable from the first day of illness.
How much is statutory sick pay per day?
Statutory Sick Pay is approximately £23.75 per day, calculated from the standard weekly rate. The exact daily amount varies slightly depending on an employee’s specific working days and schedule. The UK government updates SSP rates annually, requiring employers to update their payroll regularly.
How much is statutory sick pay per week?
From April 2025, Statutory Sick Pay is set at £118.75 per week. This rate is revised annually, and employers must ensure payroll systems comply with each update. SSP can be paid for a maximum of 28 weeks per illness absence.
How to apply for SSP?
Employees claim SSP by promptly notifying their employer about their illness and absence. No separate application is typically needed; employees provide medical documentation or a sick note as their employer’s policies require. Employers then automatically process SSP payments through routine payroll procedures.
Who pays statutory sick pay?
Employers are legally required to pay Statutory Sick Pay directly to eligible employees. These payments are processed through standard payroll mechanisms, and employers are responsible for compliance. SSP payments are also subject to employer National Insurance Contributions, reinforcing employers’ obligation to manage payroll accurately.
