National minimum wage reforms
The government promised to reflect the cost of living in the statutory minimum pay rates and remove the current age bands to ensure that every adult worker benefits from a genuine living wage.
It also wants to ensure that the statutory regulations on travel time in sectors with multiple working sites are enforced and that workers' contracts reflect the law.
Implementation Status
- The remit of the Low Pay Commission (LPC) has been changed to take account of the cost of living.
- The LPC will consult next year on a pathway to create a single adult minimum age rate.
- The minimum statutory wage rates announced in the Autumn Budget 2024 already show a closing of the gap between the rate for 18 to 20 year olds and those over 21.
- Enforcement of minimum pay for travel time will take place outside of the Employment rights Bill.
- Action
Changes to statutory minimum wage rates bring increased costs for businesses which will need to be factored into the wage bill (along with changes to employer tax and national insurance contributions).
Pay processes should be audited to avoid inadvertent breaches of the statutory pay requirements; the government is proposing that enforcement of the statutory minimum wage comes within the remit of the Fair Work Agency.
- In detail
The government has announced the increases to the statutory minimum pay rates which apply from April 2025 (accepting in full the Low Pay Commission recommendations) as follows:
National living wage (NLW) for 21 and over: £12.21 (6.7% increase)
National minimum wage (NMW) 18 to 20 year old rate: £10.00 (16.3% increase)
NMW 16 to 17 year old rate: £7.55 (18% increase)
Apprentice rate: £7.55 (18% increase)
Accommodation offset: £10.66 (6.7% increase).
These rates reflect the government's intention to achieve a single adult rate by narrowing the gap between the NLW and NMW year on year in order to achieve a single adult rate. The government has requested that under 18 and apprentice rates are set as high as possible without damaging the employment prospects of each group.
- Impact
The LPC has reported seeing signs of employers finding it harder to adapt to NMW increases. Nevertheless, it anticipates consulting next year on the pathway to achieving the government's goal of reducing the NLW age threshold from 21 to 18.
We are already seeing sectors raising in public their concerns about the impact of the increases (combined with other tax changes, including the rise in employer National Insurance Contributions announced in the Autumn Budget 2024). Employers in the retail sector have issued an open letter to the government warning of potential job losses.
Reforms to statutory sick pay
Statutory sick pay (SSP) will be available from the first day of illness, removing the current three-day waiting period. The lower earnings limit to qualify for SSP will also be removed.
Implementation Status
- Part of the Employment Rights Bill
- The Bill has been amended following consultation to provide that the percentage rate of SSP for those earnings below the current flat rate of SSP will be 80% of weekly earnings
- Expected in force April 2026.
- Action
This will bring an increased cost to businesses with SSP payable from day 1 of absence (although in some sectors employers will already operate more generous company sick pay schemes).
Employment terms and policies governing sick pay and absence will need to be reviewed. There may be an uptick in short term sickness absence; managers should be trained on monitoring and managing these situations, including return to work meetings and check-ins. An awareness of wider considerations, including the need to make reasonable adjustments for those who are disabled, will be key to avoiding inadvertent disability discrimination.
Payroll practices will need to be adjusted and employers should ensure increased visibility over systems recording attendance. Enforcement of the SSP will come under the new Fair Work Agency bringing potentially greater scrutiny.
Review or consider introducing more generous company sick pay to encourage workers to take sickness absence when needed and potentially minimising the spread of illness at work and absences becoming more long-term. With an aging workforce, supporting employees managing health issues is likely to take on increasing significance.
- In detail
SSP will be payable from day one of sickness absence (rather than from the fourth day of absence – with the three unpaid days at present, commonly referred to as "waiting days").
The current lower earnings limit (£123 per week) will be removed, making SSP available to lower paid employees. The rate of SSP will be set at either the flat rate in force from time to time (currently £118.75 per week) or a prescribed percentage of the employee's weekly earnings, whichever is lower.
A consultation seeking views on what the percentage of average weekly earnings should be for the purpose of calculating the rate of SSP for some low earnings employees closed December 2024 (awaiting response).
- Impact
At present, low-paid employees may not meet the financial threshold for SSP or, where they do, be disinclined to take sickness absence where the first three days will be unpaid.
The government is not consulting on what the flat rate of SSP should be (currently £118.75 per week but increasing in line with inflation in April each year). Campaigners wrote to the Prime Minister in October 2024 calling for the basic rate to be increased; a report by WPI Economics has found that increasing the rate could reduce days off by stemming the flow of unwell workers on to out-of-work benefits, reducing prolonged absence caused by deteriorating health and providing better public health outcomes as people would not spread illness within the workplace.
Strengthening tipping rules
Employers will be required to maintain a written tipping policy. Employers must consult with workers when developing or revising their policies and review them at least once every three years.
Implementation Status
- Part of the Employment Rights Bill
- Consultation expected winter 2025/early 2026
- Expected in force October 2026
- Once the Bill has received Royal Assent, the government will consult on revisions to the Code of Practice which is expected to provide guidance on undertaking consultation.
- Action
Ensure compliance with the existing reforms which came into force on 1 October 2024, including the new Code of Practice on the fair and transparent distribution of tips.
Put in place a process for monitoring and reviewing any tipping policy; the three-year review cycle will begin from the date a policy is originally implemented, including polices already in place before the new rules take effect.
Consider how workers will be provided with an anonymised summary of feedback received during the required consultation processes.
- In detail
Employers will be required to maintain a written tipping policy.
There must be consultation with workers (or their representatives) when developing or reviewing their policies. A review must take place at least once every three years, with the obligation arising from the first day on which the first version of the policy is made available (including policies in place before the new provisions came into force).
An anonymised summary of the views expressed in the consultation must be made available to all workers of the employer "at the place of business" where the tipping policy applies.
- Impact
The Employment (Allocation of Tips) Act which came into force on 1 October 2024 requires employers to pass all tips to workers without deduction and that employers have a written policy on tip allocation; it does not require employers to consult with workers when developing these policies (although this is encouraged in the current Code of Practice).
The government's intention is to ensure that workers are actively involved in the development of tipping policies, particularly those who are typically low-paid workers. The revisions seek to "readdress imbalances in employee input into employer decision-making and will lead to fairer tip allocation systems and overall greater worker satisfaction".
Holiday (entitlement and pay) records
A new government supported amendment to the Bill proposes a new specific obligation on all employers to keep records demonstrating compliance with holiday entitlement (leave and pay).
Implementation Status
- Proposed government backed amendment to the Bill
- No detail provided on when we may see it in force but it may be 2026.
- Action
- Employers should audit now what their approach is to record-keeping and holiday pay to pre-empt the new statutory requirements and requests from staff
- In detail
A government supported amendment to the Bill proposes a new specific obligation on all employers to keep records demonstrating compliance with holiday entitlement (leave and pay).
It is not currently proposed that there is a set format for these records.
The records must be kept for six years. Failure to comply with be a criminal offence punishable with a fine.
- Impact
Further detail is awaited and given that it is not currently proposed that there is a set format for these records, we may see government guidance to support employers as to what is required in these respects.
