The annual increases to statutory payments have now been confirmed and will take effect on 6 April 2025. These include changes not only to Employment Tribunal compensation limits but also to family-related pay and sick pay.
In addition, and on the same date, the definition of ‘small company’ for the purposes of the off-payroll working rules is also changing.
In this article, we explain the upcoming changes, what they mean for businesses and how to prepare.
Employment Tribunal compensation limits
Unfair dismissal
Where the effective date of termination takes place on or after 6 April 2025, the following rates and limits will apply:
- The limit on a week’s pay will increase to £719. This means that the maximum amount of statutory redundancy pay and the basic award for unfair dismissal, will increase to £21,570.
- The maximum compensatory award will be £118,223.
Discrimination
The various bands the Tribunal uses to determine awards to make in discrimination cases are also usually updated on 6 April each year. We are currently awaiting details of the bandings for 2025/2026 but, by way of reminder, the current bandings are as follows:
- a lower band of £1,200 to £12,100 (for less serious cases)
- a middle band of £12,100 to £36,400 (for moderately serious cases), and
- an upper band of £36,400 to £60,700 (the most serious cases), with the most exceptional cases capable of exceeding £60,700
National Minimum/Living Wage
The National Living Wage for all workers aged 21 and over will increase to £12.21 per hour. Those aged between 18 and 20 will be entitled to £10:00 per hour, and for apprentices and those aged between 16 and 18 their pay will rise to £7.55 per hour.
National Insurance Contributions
In the Autumn budget of 2024, the government introduced a measure to decrease the NICs Secondary Threshold (the earnings after which an employer becomes liable to pay secondary Class 1 NICs) from £9,100 to £5,000. This threshold will be in effect from 6 April 2025 to 5 April 2028, after which point, that plan is that it will be increased in line with the Consumer Prices Index.
The measure also proposed an increase to employer’s secondary class 1 National Insurance Contributions from 13.8% to 15%, as from 6 April 2025.
Family-related leave and sick leave
The statutory rates of pay associated with family-related leave and sick leave are also set to increase.
The weekly rate for statutory sick pay will rise to £118.75.
The weekly rate for statutory maternity, paternity, shared parental pay and parental bereavement leave will also rise to £187.18 per week.
Off-payroll working
As from 6 April 2025, the definition of “small company” will be changed to include businesses with no more than a £15m turnover and a balance sheet of no more than £7.5 million.
The current rules define a ‘small company’ as one with a turnover of no more than £10m and balance sheet assets of no more than £5.1 million. The proposed change, therefore, means that more contractors are likely to fall outside the scope of the off-payroll working rules and (in accordance with the old IR35 rules) it will be the contractor’s company which will have responsibility for assessing the contractor’s employment status, rather than the end-user client.
Comment
Whilst there is nothing new about annual increases to the statutory rates, when we look at these in the round with some of the other changes being introduced or proposed by the government as part of its plan to ‘Make Work Pay’, it is evident that the financial burden on employers will significantly increase.
Take family-related and sick leave, for instance. Although the overall percentage increase is around 1.7%, the introduction of additional associated rights will further squeeze employer resources. One example of this is the introduction of the right for eligible employees to take paid statutory neo-natal care leave (which will take effect from next month). This means that the overall amount of paid time off for those on maternity/paternity leave could increase by up to a further three months in the worst case scenario.
Likewise the government’s intention, via the Employment Rights Bill, to abolish the three day waiting period before a worker becomes eligible for SSP, and to remove the requirement for an employee to earn above the lower earnings limit in order to be eligible for SSP, means that many more workers than ever before will be eligible for sick pay.
It remains to be seen whether Labour’s philosophy – that a happy and secure workforce equals greater productivity and a more resilient economy – will be realised. This seems counterintuitive, particularly when employees often bear the brunt of rising employer costs by way of either redundancy, pay freezes or loss of benefits.
Clearly, it is important that we keep an open mind, but it will be equally important – now more than ever – to keep up to date with the proposals coming into effect in the short-term as well as those on the horizon in the longer-term, so that the right decisions can be made at the right time with the right information.
Next steps
In the meantime, our top tips to prepare for the changes are as follows:
- Work with payroll to ensure the new rates and benefits are applied from the effective date.
- Audit your lower paid, salaried workers to ensure their pay will still meet National Minimum/Living Wage levels following the increase.
- If you are planning business reorganisation or redundancies, ensure your financial analysis and risk assessments take into account the increased redundancy and tribunal compensation costs.
- Communicate rate increases to the workforce.
For further advice and assistance on any of the above matters, please contact Prettys’ Employment Team where we can provide advice and assistance on any of the matters raised above. Please contact the team on 01473 232121 for further information or you can contact Sheilah at scummins@prettys.co.uk
