I always like to end my year by sharing what will be happening in the next year in our industry, both for our teams internally but also for our clients as we answer the question “What’s new or what do I need to do?”
There are a number of changes in 2025 planned and some for 2026 that will need careful consideration throughout 2025. Here I provide my rundown of the areas of focus for HR and Payroll in 2025.
The Employment Rights Bill, introduced to the UK Parliament on 10 October 2024, proposes significant reforms to employment law, aiming to enhance worker protections and modernise workplace practices. Key provisions include:
Day-One Employment Rights: Employees would gain immediate entitlements to statutory sick pay, parental leave, paternity leave, and protection against unfair dismissal from the first day of employment. Currently, these rights require a qualifying period.
Flexible Working: The bill promotes flexible working arrangements by allowing employees to request to work full-time hours over four days from the start of their employment. While employers can refuse such requests based on specific criteria, this marks a shift towards accommodating diverse working patterns.
Zero-Hours Contracts: The legislation addresses the use of zero-hours contracts by requiring employers to offer guaranteed hours that reflect the actual hours worked over a previous period. This measure aims to provide more predictable and stable employment for workers.
Trade Union Reforms: The bill proposes changes to trade union recognition processes, including lowering the membership threshold required for recognition and simplifying ballot procedures. These reforms are intended to strengthen collective bargaining and worker representation.
Gender Equality Reporting: Employers with 250 or more employees would be required to publish annual equality action plans, detailing steps taken to address gender pay gaps and support employees experiencing menopause. This initiative seeks to promote transparency and gender equality in the workplace.
Ban on ‘Fire and Rehire’ Practices: The bill introduces measures to prohibit the dismissal of employees who refuse to accept changes to their employment contracts, commonly known as ‘fire and rehire’ tactics. This aims to protect workers from unfair contractual changes imposed by employers.
Whilst most of the legislation is not planned to be implemented until 2026 employers will need to ensure they are preparing for the changes to employment law in order to ensure employees are supported and managers understand the impact of new processes. Here are the top 3 ways I believe we are going to need to improve people systems:
The Employment Rights Bill includes day 1 rights for employee protection from unfair dismissal, currently employers do not have to follow a specific process for terminating an employee with less than 2 years service, with many employers having a Probationary Period of 3 – 6 months to assess suitability.
With the reforms there is an expected 9 month “Statutory Probationary Period” during which employers can use a ‘lighter touch’ process for dismissing an employee. This means that many employers will adopt their recruiting strategies and onboarding processes to ensure that potential hires are suited to the role they are applying for, and candidates will want to ‘kick the tyres’ of an organisation they plan to work with too.
This might result in a more stringent recruiting process with:
This may result in a longer hiring timeline and recruitment technology will require enhancements to support this process to ensure it is as frictionless for the candidate and hiring team as possible. This might include:
Once an employee joins the business the focus will be on the initial period of employment or “statutory Probationary Period” which is currently expected to be 9 months. During this time it will be vital to ensure employers have a robust process of setting clear expectations, induction plans and regular reviews to record openly between the employee and employer if expectations are being met.
What we often see is businesses with archaic paper based performance management and probationary processes with Word Documents being shared with employees.
New employee onboarding tools should integrate seamlessly with performance tools to allow.
Artificial Intelligence (AI) will play a transformative role in Human Resource Information Systems (HRIS). These systems will shift from being primarily administrative tools to becoming strategic enablers, driving efficiency, engagement, and data-driven decision-making. What can we expect from AI in 2025?
AI will empower HR teams with sophisticated workforce analytics, offering predictive insights into workforce trends and employee behaviour. This includes forecasting hiring needs, identifying potential skill shortages, and assessing attrition risks. Real-time dashboards will aggregate performance data, highlighting top performers and pinpointing areas for improvement. Additionally, machine learning models will predict which employees are at risk of leaving, enabling HR to take proactive measures to retain talent.
Employee engagement will see a significant boost through AI-powered tools. Sentiment analysis will allow employers to monitor workplace morale by analysing feedback from surveys, emails, and internal communications. Personalised learning recommendations will align with individual career goals and skill gaps, fostering continuous development. Gamification features will make participation in surveys, wellness programs, and training initiatives more engaging and rewarding.
AI will automate repetitive HR tasks, freeing up time for strategic activities. From automating leave approvals and expense claims to generating contracts and compliance reports, AI will optimise workflows for efficiency.
Performance management will evolve into a continuous process supported by AI. Real-time feedback systems will enable ongoing assessments, providing employees with actionable insights to improve. AI will also reduce bias in performance reviews by analysing feedback objectively. Managers will be able to monitor progress on goals and receive timely nudges to address performance issues proactively.
AI will play a crucial role in advancing DEI initiatives. It will identify and mitigate biases in job descriptions, hiring processes, and promotion decisions. Algorithms will actively source candidates from underrepresented groups, while equity analytics will monitor pay gaps and promotion patterns to ensure fairness. These tools will empower organisations to build more inclusive workplaces.
Chatbots and virtual assistants will become integral to HR operations, providing 24/7 support for employee queries about leave policies, benefits, and more. These tools will also handle routine tasks like scheduling meetings and sending reminders, improving overall efficiency.
AI will enable HR teams to make proactive, data-informed decisions. Predictive analytics will forecast outcomes of various HR strategies, helping businesses optimise their approach. For example, AI can recommend when to recruit, who to promote, or how to allocate resources effectively.
Despite its potential, integrating AI into HRIS comes with challenges. The key challenge being the issues with the quality of data available in HR systems. The starting point for any AI implementation strategy for HR needs to be a view of how to cleanse employee and organisational data to ensure AI has access to the correct information about the organisation.
If you are not sure where to start with AI in HR you can watch our presentation that was delivered at the CIPD event in November here.
Significant updates are coming to Employers’ National Insurance (NI) contributions in the UK, starting from April 2024. These changes will impact businesses of all sizes, requiring employers to revisit their payroll strategies and employee benefits schemes. Let’s explore these changes, how salary sacrifice arrangements can mitigate the financial impact, and the planned updates to the payrolling of benefits.
From April 2024, the earnings threshold for National Insurance contributions is set to rise. While this adjustment aims to alleviate the tax burden on employees, it places added pressure on employers who must navigate the associated costs. As the threshold increases, more of an employee’s salary may fall into NI-contributing brackets, affecting how businesses budget for payroll expenses.
One effective way employers can offset the increased costs is through salary sacrifice schemes. These arrangements allow employees to exchange a portion of their gross salary for non-cash benefits, such as pensions, childcare vouchers, or cycle-to-work schemes. By reducing the gross salary on which NI is calculated, both employers and employees can lower their NI contributions. Implementing or expanding salary sacrifice offerings not only helps manage costs but also enhances employee satisfaction by providing valuable benefits.
April 2024 will also see an increase in the National Living Wage (NLW), reflecting the government’s commitment to improving incomes for low-paid workers. Employers will need to adjust payroll systems to accommodate the higher minimum pay rates. This change will increase wage costs, particularly for industries relying on minimum-wage workers, such as retail, hospitality, and care sectors. Employers must prepare for the financial impact and consider strategies like improving operational efficiencies or revisiting pricing models to offset increased expenses.
Phase 3 recommend a review of your payroll software to check on National Living Wage compliance as greater scrutiny of employers will take place following the change of Government.
James is our Chief Operating Officer, leading the service delivery and operations for Phase 3.
