As 2025/26 Tax Year approaches, significant changes are on the horizon for employment law, particularly following the introduction of the Employment Rights Bill in October 2024.
Here’s a summary of some of the potential employment law developments expected to impact businesses in 2025.
Key Changes Coming in 2025
Starting on 1 April 2025, new National Minimum Wage rates will be implemented, reflecting the ongoing cost of living and inflation trends. Key changes include
- Starting on 1 April 2025, new National Minimum Wage rates will be implemented, reflecting the ongoing cost of living and inflation trends. Key changes include:
- National Living Wage (Ages 21+): A 6.7% increase from £11.44 to £12.21 per hour
- 18-20 Year Old Rate: A 16.3% rise from £8.60 to £10.00 per hour
- 16-17 Year Old Rate: An 18% increase from £6.40 to £7.55 per hour
- Apprentice Rate: A rise of 18% from £6.40 to £7.55 per hour
- Accommodation Offset: An increase of 6.7% from £9.99 to £10.66
Statutory Sick Pay and Other Benefits Increases
- From 6 April 2025, Statutory Sick Pay will increase from £116.75 to £118.75 per week.
- Starting 7 April 2025, statutory rates for maternity, paternity, adoption, shared parental, and parental bereavement pay will rise from £184.03 to £187.18 per week. The earnings threshold for qualifying for these payments will also increase from £123 per week to £125 per week.
Paternity Leave (Bereavement) Act 2024
- The Paternity Leave (Bereavement) Act 2024, which received Royal Assent in May 2024, is set to come into effect in 2025 (with the exact date yet to be confirmed). This law removes the usual 26-week service requirement for fathers and partners to take paternity leave in the event of the death of the mother, adoptive parent, or intended parent in a surrogacy arrangement shortly after the child’s birth. Paternity leave will become a “day one” right in these circumstances.
- Stay ahead of these changes and plan accordingly to ensure compliance as the 2025/26 tax year unfolds.
Employers NIC
From 6th April 2025, the following key changes to Employers NIC will come into effect:
- Increase in Employer NIC Rates: The government has announced an increase in the rate of Employer NICs. This will apply to most businesses that employ staff, so it’s important to budget accordingly for the additional costs.
- Revised Earnings Thresholds: Along with the increase in the NIC rates, there will also be adjustments to the earnings thresholds. This means the amount you will need to pay may vary depending on the level of earnings for each employee.
- Changes to Exemptions for Lower-Earnings Employees: There may be changes in the NIC exemptions for employees earning below certain thresholds. It’s important to review your payroll systems to ensure compliance with the new rules.
- Impact on Class 1 NIC for Directors and High-Earning Employees: Special consideration should be given to how these changes might affect higher-paid employees or directors within your organisation. Adjustments to salary structures may be necessary to mitigate any potential tax liabilities.
PAYE and NI Responsibility for Temps: New Compliance Requirements
In a significant shift, it is proposed that from April 2026 recruitment agencies will be responsible for ensuring that PAYE and NI contributions are paid for temporary workers, even if they are working through umbrella companies. This change aims to enhance accountability and ensure that tax contributions are properly managed across the sector.
Key Changes to Be Aware Of:
- Supply Chain Accountability: Agencies will face stricter obligations to verify proof of payment for tax and NI contributions and ensure compliance within their supply chain. This means you will likely need to conduct additional checks on umbrella companies and other partners to ensure they are meeting their obligations.
- Greater Scrutiny of Vendors: With a focus on eliminating non-compliant operators, the policy change will result in closer scrutiny of your vendors and partners. As a result, agencies may need to enhance their due diligence processes to maintain full transparency.
- Administrative Burden: The new rules are designed to “squeeze out” less scrupulous operators in the recruitment sector. While this will improve transparency and fairness in the long run, it could also lead to additional administrative tasks for agencies to demonstrate full compliance.
- What Does This Mean for You? Increased Responsibility: You will now need to ensure not only that your own operations are compliant, but also that your supply chain partners are adhering to the same standards, particularly around PAYE and NI payments.
- Enhanced Due Diligence: Expect increased scrutiny of your contracts and vendors. You may need to adopt more robust systems to verify compliance, which could involve collecting additional documentation or making periodic checks.
- Additional Administration: While the intention behind the change is positive, agencies should be prepared for potential administrative challenges as they demonstrate compliance.
What Should You Do Next?
- Review Contracts and Relationships with Umbrella Companies:
Ensure you have clear agreements in place with all temporary staffing suppliers, outlining their responsibilities for tax and NI contributions. - Strengthen Compliance Checks: Consider enhancing your due diligence processes and systems for verifying that all tax and NI obligations are being met within your supply chain.
- Prepare for Additional Reporting: Be ready to document and demonstrate compliance, as this could become a key focus of regulatory bodies.
These changes are part of a wider effort to improve transparency and accountability within the recruitment sector. While it may seem like an additional burden, ensuring compliance now will protect your agency from future challenges and potential penalties.
