Since the Labour government took office in July 2024, a series of legal changes has reshaped workplace compliance, with more still to come. Employment law is moving towards greater flexibility, protection and transparency for workers, including via the Employment Rights Bill, which is currently making its way through parliament.
For the finance function, this could introduce more complexity. Getting to grips with how the changes will impact costs, strategy and compliance now is the best way to avoid surprises later.
Rolled-up holiday pay is now firmly back, at least for part-year and irregular-hours workers
Holiday entitlements
Rolled-up holiday pay – whereby workers are compensated for their statutory holiday entitlement by adding an amount to their regular wages, rather than providing paid leave when holiday is taken – is now firmly back, at least for part-year and irregular-hours workers. Employers can now lawfully add 12.07% to wages in lieu of tracking annual leave, as long as this is clearly itemised on payslips.
For workers with variable pay but regular contracts, holiday pay should still be calculated based on their average earnings over 52 worked weeks.
Pay rates and NI
From April 2024, the National Living Wage will apply to those aged 21 and over (previously 23 and over), alongside the usual annual increases in statutory pay rates.
More significantly, employers’ national insurance (NI) contributions have risen from 13.8% to 15%, and the earnings threshold for NI liability has fallen from £9,100 to £5,000. This means more payroll costs for employers, especially those with large workforces or lower paid staff.
The practice of ‘fire and rehire’ has come under scrutiny
To soften the blow, the maximum Employment Allowance has increased from £5,000 to £10,500, and the removal of the £100,000 NI cap means that more small businesses and charities will now qualify. If your organisation was previously ineligible, now is the time to reassess.
Neonatal care leave
In April 2025, a new day-one right was introduced allowing employees to take up to 12 weeks of leave if their baby requires neonatal care within the first 28 days of birth for at least seven days. This leave can follow other types of family leave and is to be taken within 68 weeks of birth.
Employees with at least 26 weeks’ service and earnings above the lower threshold are also entitled to statutory neonatal pay.
Fire and rehire
The practice of ‘fire and rehire’ – dismissing staff and re-engaging them on less favourable terms – has come under scrutiny. The Statutory Code of Practice, in effect since July 2024, sets out how employers should handle such situations.
Tribunals must consider whether both employers and employees have followed the code. As of January 2025, they can adjust protective awards by up to 25% based on compliance.
Planned reforms to SSP include removing the three-day waiting period
Those advising on restructures or cost-saving measures need to be aware of the financial risks of mishandling these processes.
Sick pay
Planned reforms to statutory sick pay (SSP) include removing the three-day waiting period, making it payable from day one of sickness and extending eligibility to lower-paid workers who are currently excluded, with pay based on a percentage of earnings (proposed between 60% and 80%), capped at the current SSP rate.
Although originally slated for 2025, implementation may be pushed to 2026 to ease pressure on employers.
Changes represent a substantial shift in the way businesses manage staff entitlements
For payroll teams, this will mean added cost and complexity – particularly for short-term absence tracking and low-paid staff. It’s important to stay alert to final announcements and prepare systems accordingly.
Further proposals
The Employment Rights Bill includes some major reforms expected to come into effect from 2026. Those of note include:
- a day-one right not to be unfairly dismissed
- tougher restrictions on fire and rehire, including automatic unfair dismissal protections and increased penalties for failing to collectively consult
- a new right to request predictable hours for workers on zero-hours or irregular contracts.
While the bill is expected to pass in 2025, further regulations will be required to set out how these measures will work in practice, meaning the full impact will play out gradually.
At a glance, these employment law changes may seem like routine developments, but collectively they represent a substantial shift in the way businesses manage staff entitlements, conduct payroll and assess financial liabilities.
For those in finance – who often serve as the link between legal obligations and financial realities – this presents both a challenge and an opportunity. By understanding the upcoming legislation, adapting internal systems and advising clients or stakeholders on best practices, you can maintain compliance, mitigate risk and help businesses navigate a constantly evolving employment landscape.
