WFM UK: 2025 - 2026 Legislation Updates

Overview

This article gives an overview of the changes that the UK Government and HMRC plan to introduce following the Autumn Statement in October 2024, as well as what we already knew, and how Fourth will incorporate them into its HR and Payroll solution.

Please Note: Any regular rate or threshold increases will be addressed earlier in 2025 as and when the HMRC divulge that information. A later release note will be released confirming everything for the 2025/2026 Tax Year in early March 2025.

• Statutory Neonatal Care Leave and Pay
• Employers National Insurance & Employment Allowance
• National Living Wage

Whilst the below legislation will not take effect as part of the 2025/2026 Tax Year, we have dived into the detail and provided some below:

• Payrolling Benefits in Kind
• Employment Rights Bill

Statutory Neonatal Care Leave and Pay

CONFIRMED

In May 2023, the Neonatal Care (Leave and Pay) Act 2023, was given Royal Assent and will be introduced from the beginning of the 2025/2026 Tax year.

The new legislation grants employees an immediate statutory right to additional leave if their child requires Neonatal Care. Previously, parents had to use their standard parental leave (such as Maternity, Paternity, Adoption, or Shared Parental Leave) to care for their child in Neonatal Care, and in some cases, had to return to work while their child was still receiving medical care. With this new Act, employees now receive extra leave specifically for Neonatal Care, preserving their other parental leave and allowing them dedicated time to support their child during this crucial period.

The new Neonatal Care Leave and Pay regulations only apply to children born on or after 6th April 2025. 

Neonatal Care Leave

• Neonatal Care Leave is available for workers classed as employees and is available from the first day of employment, given that correct notice is provided to the employer.
• The child must enter Neonatal Care within 28 days of birth and last for at least 7 days.
• Neonatal Care Leave is accrued at one week per week the child is in Neonatal Care, to a maximum of 12 weeks.
• Neonatal Care Leave must be taken in one-week blocks, and taken within 68 weeks of the child's birth.
• Neonatal Care Leave is defined as having two different types of leave, Tier One and Tier Two
  • Tier One is leave taken whilst the child is still in Neonatal Care (plus one week) and can be taken flexibly by the employee during this time. Periods of Neonatal Care Leave in Tier One may be taken before other parental leave; e.g Paternity Leave and Shared Parental Leave (which may have been pre-booked for further down the line following the child’s birth) because of the immediate nature of the Tier One Neonatal Care Leave. Where a parent has already booked a period of another parental leave entitlement, they would not need to change or vary that leave to avoid getting into the complexity of existing notice period requirements for those other leave entitlements. Neonatal Care Leave can be fitted around these other pre-booked leave entitlements.
  • Tier Two is leave taken when the child is no longer receiving Neonatal Care, but the employee has remaining accrued leave weeks. In Tier Two, Neonatal Care Leave can only be taken in a single block, before or after any other existing parental leave right. The only exception is if the child is re-admitted into neonatal care when the employee is already on a Tier Two leave, the ongoing Tier Two leave can be stopped to accommodate the new Tier One leave period. Any remaining period of the Tier Two leave will be taken immediately after the end of the interrupting Tier One leave.

Neonatal Care Pay

• Employee must be eligible and have taken Neonatal Care Leave for it to be paid.
• Employee must have worked for the employer for at least 26 weeks.
• Employees Average Weekly Earnings must meet or exceed the Lower Earnings Limit, currently set as £123.00 per week.
• Average Weekly Earnings will be calculated based on the 8 weeks before the relevant week.
• If the parent is not eligible for any other statutory parental pay, the relevant week will be the week immediately before the week the child enters into neonatal care. However, if the parent is also eligible for another statutory parental pay, the relevant week for neonatal care pay will align with the relevant week for that other statutory parental pay.
• Neonatal Care Pay will pay at the same rate per week as it does for other parental leave types. For example, £184.03 or 90% of the employee's average weekly earnings, whichever is lower.

Fourth's Response

Fourth will be building, similar to other statutory parental leave types, functionality to handle the administration of Neonatal Care Leave and Pay. Following the confirmation of this only applying to babies born on or after 6th April 2025, the new functionality will be available when the portal has been rolled forward into the 2025/2026 tax year.

Employers National Insurance & Employment Allowance

CONFIRMED

Whilst employee national insurance remains unaffected, employers National Insurance will see two changes. From the earnings paid on or after 6th April 2025:

• The Secondary Threshold will be reduced. This will be frozen until 5th April 2028.
  • Monthly - Reduced to £417
  • Four Weekly - Reduced to £385
  • Fortnightly - Reduced to £193
  • Weekly - Reduced to £96
• The rate at which employers National Insurance is calculated is being increased from 13.8% to 15%

In addition to the National Insurance changes, changes are being made to the Employment Allowance:

• The maximum annual employment allowance will increase from £5,000 to £10,500.
• The £100,000 threshold restriction on Employment Allowance, meaning any employer that incurs Class 1 NIC liability over this amount cannot claim Employment Allowance, is being removed.

Fourths Response

Fourth will ensure that when the portal is rolled forward into the 2025/2026 tax year, the National Insurance changes are applied, as well as the Employment Allowance.

National Living Wage

CONFIRMED

Effective from the 1st April 2025, the National Minimum and Living Wage will increase as below:

• 21 and Over - Increasing from £11.44 to £12.21
• 18 to 20 - Increasing from £8.60 to £10.00
• Under 18 - Increasing from £6.40 to £7.55
• Apprentice - Increasing from £6.40 to £7.55

It is expected that with the gap between 21 and Over and 18 to 20 becoming narrower, eventually in the future (years) the National Living Wage will apply to workers 18 and Over.

Fourths Response

Effective from 1st April 2025, Fourth will ensure that these new NMW and NLW rates are applied. Remember, new NMW and NLW only apply to the first full pay cycle after 1st April.

Payrolling Benefits in Kind 

CONFIRMED

Back in January 2024, we released this article outlining that the Payrolling Benefits in Kind was proposed to become mandatory from 6th April 2026. To follow up on this article, Fourth are able to confirm the following:

• Payrolling Benefits in Kind will be mandatory from April 2026
• Employment Related Loans and Accommodation will remain unable to be payrolled, and will be processed via a 'micro' P11D. Everything else will be in scope of payrolling.

Fourths Response

Fourth are committed and have begun work on building new functionality to administrate company benefits and have them integrate directly with payroll, to payroll the benefit and report to the HMRC. Fourth will have a solution in place ready to use for the 2026/2027 Tax Year.

Employment Rights Bill

PROGRESSING THROUGH BILL PASSAGE & CONSULTATIONS

Currently the Employment Rights Bill is currently going through the House of Commons and is at the Committee Stage. At this time, the exact dates of when anything to be legislated through this bill will come into effect are unknown. An overview of the bill has been provided by the Government, however, and can be found here with more detail on individual aspects found here.

What we do recognise is that consultations will take place in throughout 2025, with expectation that any changes will apply no earlier than 2026.

Whilst there are many aspects of the Employment Rights Bill to consider, Fourth understand the following to be of importance in respect to the Fourth UK HR & Payroll solution:

• Right to Guaranteed Hours - This will see efforts to ban zero-hour contracts by way of employers needing to offer guaranteed hours to qualifying workers based on total hours worked in a, yet to be defined, reference period.
• Right to Reasonable Notice - In the event an employer schedules, changes or cancels shifts then reasonable notice must be given to the employee(s) otherwise employers would be risking a tribunal claim.
• Right to Payment for Cancelled, Moved or Curtailed Shifts - If an employer cancels, moves or curtails a shift at short notice then employees will have a right to be paid for this. 'Short notice' is yet to be defined.

There is also a consultation currently taking place to bring Agency Workers into scope of the above. Further to this, it is expected that the proposed Workers (predictable Terms and Conditions) Act 2023 will be dropped, with the Employment Rights Bill taking its place. 

• Fire & Rehire(Further Consultation Notes here) - Restrictions put in place so that employers are unable to use 'fire & rehire' tactics, whereby if an employee is dismissed due to failing to agree on a change in contract, dismissed to be replaced or then approached to be re-hired using varied contractual terms then these dismissals will automatically be treated as unfair. Unless the employer can provide that the dismissal was due to:
  
  • Financial or viability difficulties and that the dismissal was truly to eliminate, prevent or mitigate the effects of those difficulties
  • Changes to contractual terms were unavoidable
• Unfair Dismissal - The Government will repeal the two-year qualifying period for employee protections and introduce a 'Statutory Probation Period' to both ensure employees are protected from unfair dismissal from day one, but also ensure the employer has a reasonable period to assess that the employee is a good fit in their employment.
  • Unfair dismissal will also look to introduce protections for pregnant workers and workers who have returned to work following pregnancy/parental leave for six months so that they cannot be dismissed.
• Redundancy - Efforts to toughen collective redundancy rights and close redundancy loopholes. We expect more information on this in the future.
• Bereavement Leave - There is no legislation giving a statutory right to workers to be allowed to take leave in the event of the death of a loved one (with exception of a child under the age of 18). The expectation is that a Statutory Bereavement Leave will be introduced allowing workers to legally take unpaid leave of one week. 
• Paternity Leave and Unpaid Parental Leave - The Government are looking to make Paternity Leave a 'day one' right (reduced from 26 weeks) as well as a making taking Unpaid Parental Leave a day one right (reduced down from one year). The restriction of not allowing a father to take their Paternity Leave after the use of Shared Parental Leave will be removed. 
• Right to Request Flexible Working - The Government will strengthen the existing right to request flexible working and will introduce reasonable grounds for why a request was rejected.
• Statutory Sick Pay - It is expected that the Government will be removing the use of the Lower Earnings Limit to the assessment of eligibility for SSP, as well as removing the three day waiting period before SSP can be paid for absences. 
• Tipping Policies - Further review and amendment to the Allocation of Tips Act, which will see the mandating of consultations with trade unions or where no union is available a direct consultation with those likely to be effected by a Tipping policy. Regular reviews of these policies are to be enforced with those mentioned in the first point to be involved during every review.

Fourths Response

Fourth will continue to closely monitor this new bill, and will make the necessary changes to the system to comply with legislation as and when they are mandated. As mentioned above, it is not currently expected anything will be introduced in 2025, but in the event it does Fourth will be prepared to make the necessary adjustments to the system ahead of the changes.

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