2025 is shaping up to be a challenging year for UK businesses, with a wave of legislative and financial changes set to affect SMEs. With rising costs and new employment laws to consider, it’s understandable if you’re feeling overwhelmed. But you don’t have to figure it all out on your own. At Fox HR, we’re here to walk you through the key changes in a clear and practical way, helping to lighten the load and keep your business on track.

The new financial year starts on the 6^th April 2025. For businesses, now is the time to take a step back and reconsider your finances, business operations and ways of working. It can be daunting if you aren’t sure where to start, and you can celebrate the fact that you’ve already taken that first step, because you’re here! Let’s break down some of the main changes you need to make to stay profitable, productive and compliant in 2025.

Workforce Planning and Budgeting

Workforce planning needs to be at the top of the agenda for every business this year. The Government has confirmed a series of changes that will push up the cost of employing people in the UK, most notably in relation to increases to the National Minimum and Living Wage, and National Insurance.

‘Workforce planning’? That sounds a bit scary, doesn’t it?

Forget the terminology for now. In reality, this means that your costs are almost certainly going to go up from April 2025. You can prepare for this by taking a good, hard look at your budget and cashflow – perhaps with the support of your accountant – to figure out where that extra money will come from. You’ll need to know where you stand on things like:

• Payroll costs
• Employee benefits
• Training expenses
• Absence costs
• Recruitment costs

One way or another, you need to decide how to cover these rising costs. Getting a clear financial picture now will give you and your accountant the information you need to plan ahead, so there are no nasty surprises down the line.

So, what do these costs look like in reality?

Increases to National Minimum and Living Wages

As part of its pre-election commitments, the Labour Government pledged to removed minimum wage age-related brackets to reflect changes in the cost of living. This means that younger workers (18-21) will see their pay brought in line with the National Living Wage for over-21s.

From April 2025, the following increases will take effect, giving the lowest-paid workers a significant pay boost:

• National Living Wage (NLW) will rise from £11.44 to £12.21 per hour.
• National Minimum Wage (NMW) (for 18-21-year-olds) will increase from £8.60 to £10 per hour.

The rise in the National Living Wage is largely a response to the high levels of inflation in recent years. Now that inflation has peaked, we’re unlikely to see such sharp increases in the near future.

However, you can expect National Minimum Wage to continue rising over the next few years until it fully aligns with the National Living Wage, closing the gap between pay rates for younger and older workers. The Government’s goal is to close this gap by 2029.

Significant Changes to Employer National Insurance

Furthermore, and the change that’s kept many of our clients up at night – the Government confirmed in the Autumn 2024 Budget that major Employer National Insurance changes will take effect from April 2025:

• Employer National Insurance contributions will increase from 13.8% to 15%.
• The earnings threshold at which payments apply will drop from £9,100 to £5,000 per year.
• The Employment Allowance will rise from £5,000 to £10,500, offering some relief for smaller businesses.

For most employers, the first two changes will mean a significant increase in National Insurance costs. The rise in contributions means that businesses will pay more tax per employee, and the lower threshold means that more lower-paid workers will now fall within National Insurance deductions. While the increase in Employment Allowance will help some smaller businesses by reducing their overall NI liability, many SMEs with growing teams will still see higher payroll costs.

For businesses already balancing wage increases and other rising costs, this could mean reviewing budgets, delaying recruitment, or reconsidering pay rises. The sooner you assess the impact, the better prepared you’ll be to absorb these changes and make informed financial decisions for the year ahead.

Policy and Compliance

When the Government announced their Employment Rights Bill last year, they confirmed a series of employment law changes that will be phased in over the next two years, with some expected to take effect in 2025 and others in 2026, though for the most part, exact dates are yet to be announced.

One of the most significant changes is the introduction of day-one rights for key employee benefits, including unfair dismissal, Statutory Sick Pay (SSP), unpaid parental leave, paid paternity leave, and paid bereavement leave. These updates will expand employee entitlements from the very start of employment, meaning businesses will need to update contracts, policies, and payroll systems in advance to remain compliant.

Let’s break this down.

What Can I Worry About Later?

The Government have proposed to scrap the waiting period for Statutory Sick Pay (SSP) , meaning employees will be entitled to SSP from the first day of absence, regardless of how long they are off. This change, combined with SSP becoming a day-one right, removes previous service length requirements, ensuring immediate eligibility for all employees. This is not expected to be implemented until 2026.

While family-related leave changes, including day-one rights for unpaid parental leave, paid paternity leave, and paid bereavement leave, are part of the Employment Rights Bill, they are also not expected until Autumn 2026. These will remove minimum service requirements, expanding access to leave from day one. Though not a 2025 priority, you should keep these changes on your radar and plan for policy and payroll updates once implementation dates are confirmed.

But you do need to know about this one…

Neonatal Care Leave and Pay

Effective from 6 April 2025, the Neonatal Care Leave and Pay provision grants parents up to 12 weeks of paid leave if their baby is admitted to hospital within 28 days of birth and has a continuous hospital stay of seven days or more. This leave is in addition to existing entitlements like maternity, paternity, and shared parental leave. To qualify, employees must have at least 26 weeks of service and meet minimum earnings criteria.

To prepare for this change, you’ll need to update your family leave policies (or have a separate Neonatal Care Leave policy), ensuring eligibility criteria and application processes are clear. You’ll also need to consider how you’ll manage potential extended absences from the business, most likely with short notice, and how you and your managers will support employees requiring this leave.

What About Unfair Dismissal?

Good question – this was one of the key discussion points when the Employment Rights Bill was published last year, and for good reason. Currently, as you’re probably aware, protection from unfair dismissal only applies after two years of continuous employment. While probation periods are widely used, they are contractual, not statutory, meaning businesses set their own terms.

The Government initially planned to make unfair dismissal protection a day-one right, but following business concerns, the policy has been revised. Instead, the draft bill proposes introducing a statutory probation period, likely lasting six to nine months, before unfair dismissal rights take effect. This change aims to balance job security for employees with flexibility for employers during the early stages of employment.

There is likely to be an extensive (i.e., lengthy!) consultation process on this particular proposed change, with changes taking effect in Autumn 2026 at the earliest. You can safely add this to your ‘worry about it later’ list.

And Zero-Hours Contracts?

Another headline that caused a bit of a stink when the Employment Rights Bill was announced, was the proposal to scrap zero-hours contracts. It proposes significant reforms to address concerns over job insecurity and unpredictable work schedules. The key change obliges employers to offer guaranteed hours to zero-hours workers who have consistently worked regular hours over a specified reference period. This measure aims to provide greater stability and income predictability for workers.

Industries that heavily rely on zero-hours contracts, such as hospitality, retail, and healthcare, are likely to be most affected by these changes. Employers in these sectors may need to adjust their staffing models to comply with the new requirements, potentially leading to increased administrative responsibilities and labour costs. However, the bill allows for flexibility, enabling employers to issue guaranteed hours contracts on a limited-term basis, after which they can revert to zero-hours arrangements if necessary.

These reforms are currently under consultation, with the government engaging with stakeholders to refine the proposals. The changes are expected to be implemented no earlier than 2026, so you can park this one for now, too.

What Else Is On The Horizon?

Truthfully, quite a bit.

As with the proposed changes to the likes of SSP, unfair dismissal, and zero-hours contracts, the changes aren’t imminent for 2025, so you can breathe a small sigh of relief for now. Employers do need to know what’s coming though, so here’s a brief overview of the other areas of reform that the Employment Rights Bill proposes:

• Strengthening of flexible working arrangements, proposing that flexible working is ‘the default’ and placing more pressure on employers to justify refusals.
• Alongside several changes to trade union rights, the Government has also announced employers will now be legally required to inform workers of their right to join a trade union. 
• Fire and rehire practices will be banned in most cases, only allowed as a last resort to prevent insolvency, with employers required to provide clear evidence of financial distress and prove that the changes are unavoidable.
• Following in the footsteps of our French counterparts, the Government wishes to create the legal ‘right to switch off’. There is no definitive timescale for this and it may not be pursued.
• Likewise there is no clear timeline, but the Government have proposed to make it a legal right to work a four-day working week.

There are other proposed changes that will affect employers with more than 250 employees, particularly around menopause, gender pay gap reporting, and a new requirement to report on disability and ethnicity pay gaps.

So, What Do I Need To Do?

It’s a lot to take in, but the key actions you need to take now are as follows:

• Calculate and budget for increases to Employer National Insurance contributions.
• Consider how wage and tax changes will affect recruitment, retention, and employee engagement.
• Prepare a policy and procedure for the introduction of Neonatal Care Leave, and communicate it to your people.

What Else Can I Do?

Given what’s in store, in the short term, investing in staff development might feel like a luxury rather than a necessity. However, upskilling your employees can boost productivity, reduce long-term recruitment costs, and strengthen engagement and loyalty within your team. Employees who feel undervalued or undertrained are far more likely to leave, leading to higher hiring and onboarding costs in the long run.

Upskill Your Current Team

With employment costs rising, many businesses may not have the budget to grow their teams as planned. This makes it even more important to equip your existing employees with the skills and support they need to work efficiently and confidently in their roles. A dedicated training budget is ideal, but if funds are tight, consider low-cost alternatives like peer-to-peer training, where experienced team members share their expertise.

Whatever approach you take, it’s important to define which types of training matter most to your business:

• Mandatory training – Essential company-wide training, particularly crucial in 2025/26 as new compliance laws come into effect.
• Skills training – Development of specific expertise, such as adapting to AI advancements, new technologies, or evolving market demands.
• Individual training – Tailored learning for employees or teams, aligning with career growth, performance goals, and business objectives.

Identifying which of these is your biggest priority will help ensure your training budget, whether big or small, is aligned with your wider business goals and delivers maximum impact.

Keeping employees engaged needs to be a core part of your people strategy in 2025 – it’s more important than ever to be attuned to how people are feeling at work and how this impacts your business.

Ask Your People!

Many of our clients are turning to employee engagement surveys to get direct, honest feedback from their teams. A well-designed survey is a quick, cost-effective way to gauge employee sentiment, helping employers pinpoint what’s working well and where improvements are needed. By regularly checking in on engagement levels, businesses can identify trends in morale, workload concerns, leadership effectiveness, and workplace culture before small frustrations turn into bigger issues.

These surveys also show employees that their opinions matter, giving a sense of inclusion and trust. But the real impact comes from acting on the feedback, whether that means improving communication, addressing workload imbalances, or refining policies that impact daily working life. When employees see real, positive changes as a result of their input, engagement and trust in leadership naturally grow. For SMEs and small businesses, this approach can be a game-changer, allowing you to make targeted, high-impact improvements without unnecessary spending.

Final Thoughts

With so many changes on the horizon, 2025 will be a defining year for UK businesses. Rising employment costs, new compliance requirements, and shifting workplace rights mean that preparation is key – and those who plan ahead will be in the strongest position to adapt and thrive. At Fox HR, we’re already supporting our clients through these transitions, helping them budget effectively, update policies, and ensure their people remain engaged and productive.

If you’re feeling uncertain about what these changes mean for your business, you don’t have to figure it out alone. Whether you need help rolling out policy updates, reviewing your workforce strategy, or strengthening employee engagement, we’re here to make the process smoother and less overwhelming.

Get in touch today and let’s make sure your business is ready for 2025 and beyond.