UK Employment Law 2025: Essential Updates For Businesses

Published on Monday 4 August 2025

Table of Contents

• Understanding UK employment law and the Employment Rights Bill
• New provisions for wages and family leave
• Flexible working and the right to disconnect
• Preparing for the 2025 Employment Law changes
• Compliance checklist for 2025
• Staying ahead of 2025’s new employment laws
• Use Xero to adapt to the changes ahead
• FAQs on employment law changes

Key Takeaways

• The Employment Rights Bill brings major changes to pay, leave, flexible working, and employee protections in 2025.
• New minimum wage rates take effect on 1 April 2025, with increases for all age groups.
• Neonatal leave and pay provide support for parents of babies needing specialist care.
• Employees can request flexible working from day one of their job, with up to two requests per year.
• Using payroll software like Xero can help manage wage updates and leave entitlements easily.

Understanding UK employment law and the Employment Rights Bill

The UK government’s Employment Rights Bill sets out key changes to employment law. It supports the Make Work Pay initiative, aiming to boost the economy, protect workers, and raise living standards.

• Small business owners need to know these changes to stay compliant and avoid problems.
• The Bill is the main reform to employment law in 2025.
• It aims to improve conditions for UK employees—covering fair pay, family leave, flexible work, and protection against unfair dismissal.
• Some rules start in April 2025 (like new wage rates), others will begin later in 2025 or in 2026.
• The Bill covers a wide range of issues including pay, family-friendly working, and protections for vulnerable workers.

View the GOV.UK Employment Rights Bill factsheet.

New provisions for wages and family leave

The most important changes in 2025 affect minimum wages and family leave. These changes affect payroll, staffing, and daily operations. Remember, these are legal requirements—not just recommendations.

National Minimum Wage and National Living Wage updates

From April 2025, new minimum wage rates come into effect. Here are the main changes employers should be aware of:

National Minimum Wage rates:

• Age 18–20: £10.00 per hour (up from £8.60)
• Age 16–17: £7.55 per hour (up from £6.40)
• Apprentice rate (under 19 or first year): £7.55 per hour

National Living Wage rate:

• Age 21 and over: £12.21 per hour (up from £11.44)
• The age for National Living Wage eligibility is lowered from 23 to 21

Penalties for underpayment:

• Employers who underpay may owe 200% of the underpayment (halved if paid within 14 days).
• Maximum fines of £20,000 per worker apply, with a minimum fine of £100 per worker.

See the latest National Minimum Wage rates.

Family leave expansions

New family-friendly policies are being introduced in 2025 to support parents whose baby requires neonatal care – treatment within the first 28 days after birth. Here’s what employers need to know:

Neonatal leave and pay:

• Available to parents of babies who require specialist neonatal care.
• Applies to both biological and adoptive parents, including those through surrogacy.
• Neonatal leave is available from day one of employment.
• Statutory Neonatal Pay requires at least 26 weeks of continuous service.

Length of leave:

• One week of leave for every seven consecutive days a baby spends in neonatal care.
• Maximum leave of 12 weeks.Neonatal leave is on top of other parental leave, such as maternity and paternity leave.
• Leave can be taken immediately or later, as long as it’s used within 68 weeks of the birth.

Pay rates:

• Statutory Neonatal Pay is £187.18 per week, or 90% of average weekly earnings – whichever is lower.
• All eligible parents can take the leave, but pay is only available to those with 26 weeks’ service.

Notice requirements:

• Leave while your baby is in neonatal care (Tier 1) – Notify your employer as soon as possible – even on the day you want leave to begin.
• Leave after your baby has left neonatal care (Tier 2) – Give at least 15 days’ notice for one week of leave, or 28 days’ notice for two weeks or more.

See the latest rules on neonatal care leave and pay.

Flexible working and the right to disconnect

The rules around flexible working and employee wellbeing are changing. These updates give employees more control over how they work and help create a healthier work environment.

Flexible working updates

From 2025, employees can ask for flexible working right from day one of their job, instead of waiting 26 weeks like before.

Flexible working means changing when, where, or how long someone works. Employees can make up to two requests each year. Employers must respond within two months and can only say no for valid business reasons, like extra costs or staffing problems.

If a request is denied, employers should suggest alternatives and offer a way to appeal the decision.

Right to disconnect updates

The right to disconnect means staff are not expected to respond to work messages outside their contracted hours.

While this wasn’t made law in the UK for 2025, some countries like France and Spain already have it. Many businesses choose to adopt this policy voluntarily to protect employee wellbeing.

Encouraging managers to respect working hours helps reduce stress and improve work-life balance.

Preparing for the 2025 Employment Law changes

Small and medium businesses should take action to prepare for the UK employment law updates.

Here are some steps you can take now to minimise disruption from the recent changes to employment law.

Review contracts and HR policies

Check your employment contracts and HR documents to make sure they meet the latest legal requirements.

You don’t need to reissue contracts just because of the 2025 changes—statutory rights take priority over contract clauses. But it’s important to clearly explain the new employee rights to your staff.

Update employee handbooks, onboarding materials, and internal policies to keep everything consistent and compliant.

Learn more about payroll compliance.

Adjust payroll and budgets

Update your payroll systems to apply the new National Minimum and Living Wage rates from April 2025. Penalties for underpaying staff can be heavy.

Payroll software like Xero will update rates automatically when they take effect, helping reduce errors.

Also, forecast how higher wages and expanded family leave might impact your finances. If your profit margins are tight, consider where you can save costs to manage cash flow.

Learn more about payroll.

Train managers and HR teams

Prepare your managers and HR staff for the changes. Train them on how to handle flexible working requests and answer questions about neonatal leave and other entitlements.

Updating internal documents and templates will help keep guidance clear and consistent. Sharing these guidelines with staff and managers can reduce misunderstandings and prevent disputes.

Compliance checklist for 2025

Staying compliant with the recent employment law changes is about more than avoiding penalties – it helps prevent employee discontent and keeps your business running smoothly.

Here’s a short action plan small businesses can follow to prepare for the upcoming employment law changes in 2025:

1. Update employment contracts – Review clauses about flexible working eligibility, pay rates, and family leave. You don’t have to reissue all contracts, but flag any outdated clauses and address them through updated internal policies and documentation.
2. Adjust payroll for wage increases – Make sure your payroll system reflects the new National Minimum and Living Wage rates by 1 April 2025 to avoid pay errors and penalties.
3. Review family leave policies – Update your parental leave documents to include neonatal care leave and statutory pay entitlements. Prepare to roll these out before the new rules take effect.
4. Plan for flexible working requests – Have a clear, fair, and documented process for handling flexible working requests. Ensure decision-makers understand legal timelines, valid business reasons for refusal, and the importance of consistent decisions.
5. Train managers on new rights – Provide proactive training on the 2025 changes so managers can support employees and give accurate guidance. Clear internal documents will help keep policies consistent and reduce miscommunication or mistakes.

Learn about payroll numbers.

Staying ahead of 2025’s new employment laws

Being proactive about the new employment laws will help your business avoid disruption. Follow these practical steps to stay on track:

• Review reliable information sources: Use accurate and trusted resources like the official GOV.UK website is the safest place to start, along with trusted resources like Acas.
• Understand the timeline: Keep track of when new rules come into effect so you have enough time to update payroll systems, policies, and processes. Avoid last-minute changes that increase risk of mistakes.
• Document everything: Keep your internal policy documents current, record your flexible working procedures, and save all staff communications. This will help if any disputes arise.
• Plan your budget: Prepare financially for higher wages, extended statutory leave, and any training or system updates. Make sure your cash flow can support these costs without affecting other business areas.

Use Xero to adapt to the changes ahead

Changes to employment laws don’t have to be stressful. Xero is designed to help small businesses stay compliant – from automatically applying the latest wage rates to managing employee leave with ease.

By managing everything from one place, it’s easier to stay organised, reduce errors, and navigate the new rules with confidence.

Try Xero for free today.

FAQs on employment law changes

Here are answers to some common questions employers have about the 2025 UK employment law updates.

How do these changes affect contractors and gig workers in 2025?

The 2025 changes apply to employees rather than self-employed individuals. Contract or gig workers should stay up to date with HMRC guidance to stay on top of changes that may affect them.

When will official guidance be published for these new employment laws?

HMRC typically provides official guidance around the time new legislation takes effect. Always refer to the GOV.UK website for the most up-to-date information and resources.

What penalties might businesses face for non-compliance with the new laws?

Paying staff below the legal minimum wage can result in a penalty of 200% of the arrears, plus a fine of up to £20,000 per employee – as well as reputational damage.

How do UK employment law changes for 2025 compare to European standards?

Minimum wages have increased in the UK and across most major European economies to help offset rising inflation. However, the UK still lags behind in some areas – notably the right to disconnect, which is mandatory in countries like France and Spain but was scrapped from the UK’s 2025 reforms.