It’s time for SMEs to brace themselves, as announcements made in the King’s Speech and first Labour Budget start to be implemented.
At the start of every year, forward-thinking businesses will be looking ahead to anticipate what’s on the horizon.
In employment law terms, after a change of government last year, 2025 will be the start of some drastic changes for employers. Here is a rundown of the most prominent issues…
National minimum wage increases
Rises to the various national minimum wages are an annual fixture, but the ante is upped in 2025 with inflation busting rises.
The headline rate is the national living wage and this increases 6.7% from £11.44 to £12.21. 18–20-year-olds get a 16.3% pay rise (£8.60 to £10), while under-18s and apprentices get an 18% increase. Their rate jumps from £6.40 to £7.55.
All these take affect from 1 April, so it is important to start budgeting for them now.
Employer National Insurance increases
It is sometimes referred to as a jobs tax, and there was a major shock in Chancellor Reeves’s Autumn Budget when she announced employer National Insurance contributions would rise (again in April). It jumps from 13.8% to 15% at the same time that the secondary threshold for when it becomes payable is reduced from £9,100 to £5,000.
There is some mitigation for SMEs in that the employment allowance will be extended significantly from £5,000 to £10,500 a year, which will offer some protection.
As with the national minimum wage, this will be a major upwards pressure on your employment costs. Start planning for it now and if you think it will lead to restructuring or redundancy, ensure you do it correctly as there are rules to comply with.
Neonatal Care (Leave and Pay) Act 2023
This is another change arriving in April. Less sweeping but important for those affected, it allows new parents whose baby requires medical or palliative care within the first 28 days of birth to have additional statutory leave, to be taken after their standard leave ends.
The leave itself will be a day one right, but to be eligible for pay the employee will need 26 weeks’ continuous service and to be earning at least £123 a week. Whenever this leave may come into play, it is likely to be a difficult, even traumatic, time for an employee. So handle with care.
The Employment Rights Bill
Labour’s flagship legislation was promised within the first 100 days of parliament and then duly initiated. The Bill covers 28 separate reforms, including:
- Trade union powers
- Zero-hour contracts
- Day one rights to claim unfair dismissal
- Sick Pay
- Parental and bereavement rights
Not much of it will come into force in 2025, but there will be developments as consultations happen and the Bill passes through parliament. Savvy SME owners will stay abreast of these as there will be significant change when the bill finally comes to pass.
