Latest UK Employment Legislation Employers Should Know (2025 Update)
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The UK remains one of the most attractive markets for international expansion, but employers must navigate a complex web of tax, payroll, and employment regulations. With several key updates to UK employment law taking effect in 2025, companies hiring in Britain must stay alert to avoid compliance risks.
This guide covers the latest UK employment legislation updates for 2025 – including tax changes, pension reform, and enhanced worker rights — and explains how an Employer of Record (EOR) or Professional Employer Organisation (PEO) like Gibson Watts Global can simplify compliance.
Why Compliance Matters in the UK
The UK is globally recognised for its business-friendly environment, but employment law is robust and evolving. For international employers, compliance is not optional:
- Strict enforcement: HMRC actively fines for payroll, NIC, or pension errors.
- Employee protections: Workers have extensive statutory rights from day one.
- Reputation risk: Failure to comply damages employer brand in a highly competitive market.
For companies without a local HR or payroll team, navigating these rules can feel like a maze. That’s why many businesses now use EOR or PEO services to ensure every hire is compliant from day one.
1. National Insurance Contributions (NICs) - 2025 Update
From April 2025, Employers’ National Insurance contributions have increased from 13.8% to 15%. Employee contributions remain unchanged.
What This Means in Practice
Employers must budget more for every hire.
Salary (annual) | Employer NIC (13.8% in 2024) | Employer NIC (15% in 2025) | Extra annual cost |
£30,000 | £4,140 | £4,500 | +£360 |
£60,000 | £8,280 | £9,000 | +£720 |
£100,000 | £13,800 | £15,000 | +£1,200 |
Compliance risk: Errors in NIC calculations can lead to HMRC fines.
EOR solution: Gibson Watts Global manages payroll end-to-end, ensuring contributions are calculated correctly and paid on time.
2. UK Income Tax Thresholds for 2025/26
The UK maintains a progressive income tax system, but thresholds have been updated.
Band | Income Range | Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic Rate | £12,571 – £50,270 | 20% |
Higher Rate | £50,271 – £137,710 | 40% |
Additional Rate | Over £137,710 | 45% |
Note: Above £100,000, the personal allowance reduces by £1 for every £2 earned, disappearing entirely at £125,140.
For employers, this means accurate PAYE deductions are essential — especially for senior hires in higher tax brackets.
3. Minimum & Living Wage Increases (April 2025)
The UK government raised minimum wages in April 2025.
Category | New Rate (2025) | Previous Rate (2024) | % Increase |
Under 18 | £7.55 | £7.10 | +6.3% |
18–20 | £10.00 | £9.30 | +7.5% |
21 and over | £12.21 | £11.44 | +6.7% |
Apprentices | £7.55 | £7.10 | +6.3% |
Why it matters: Employers must update payroll systems or risk underpaying staff, which can trigger penalties and reputational damage.
EOR solution: We automatically adjust payroll to reflect annual rate changes.
4. Pension Reform: Automatic Enrolment
Automatic enrolment into workplace pensions continues to evolve in 2025.
- Minimum contribution: 8% of qualifying earnings
- 5% employee
- 3% employer
- Eligibility: Employees aged 22+, earning >£10,000 annually.
Increased Enforcement in 2025
The Pensions Regulator has stepped up audits, with fines for late or missing contributions.
EOR solution: Gibson Watts Global ensures all employees are auto-enrolled, contributions are made and opt-outs are processed correctly.
5. Worker Rights & Employment Law Updates (2025)
Several new protections came into force this year:
Flexible Working
- From day one, employees can request flexible working arrangements.
- Employers must consider requests reasonably, with clear timelines for response.
Parental Leave
- Stronger redundancy protections for parents on maternity, paternity, or adoption leave.
Holiday Pay for Irregular Hours
- New government guidance clarifies how holiday pay should be calculated for zero-hour or variable-hours contracts.
Statutory Sick Pay (SSP)
- Weekly SSP rates increased in line with inflation. Employers must process claims correctly via payroll.
EOR solution: We draft compliant contracts, handle leave and absence payments, and ensure new entitlements are applied correctly.
6. Corporate Tax Context (April 2025)
While not strictly employment law, corporate tax affects the cost of UK operations:
- Small profits (<£50,000): 19%
- Main rate (>£250,000): 25%
- Marginal relief applies for profits between.
This adds to rising employer costs (with NIC increases), making cost planning essential.
7. FAQs - UK Employment Compliance (2025)
Q1: Do I need a UK entity to hire employees?
No. With an Employer of Record (EOR), you can hire employees in the UK without setting up a legal entity. The EOR acts as the legal employer, handling compliance, payroll, and HR.
Q2: What are the penalties for not complying with pensions or PAYE?
HMRC and The Pensions Regulator issue fines for late or missing contributions. Fines can range from daily penalties (£50–£500) to lump sums.
Q3: Can overseas companies pay UK staff in their home country?
No. UK employees must be paid via HMRC’s PAYE system with correct deductions for tax and NICs.
Q4: How long does it take to set up a UK entity?
Setting up a UK subsidiary can take weeks to months and involves ongoing compliance. Using an EOR allows hiring in as little as 2–4 weeks.
Q5: Is 13th-month pay common in the UK?
No. It’s not mandatory or standard practice, though some employers offer discretionary bonuses.
8. Case Example: A US Climate Tech Company Expanding into the UK
A US-based climate tech company wanted to hire two sales managers in London in early 2025. Setting up a UK entity would have delayed expansion by 3–4 months. Instead, they used Gibson Watts Global’s EOR service:
- Contracts issued within 2 weeks
- Payroll and pensions handled via PAYE
- Compliance with new NIC and wage thresholds assured
Result: The company started UK operations within weeks, ahead of competitors, with no compliance headaches.
9. Why Partner with Gibson Watts Global
Expanding into the UK is a strategic opportunity, but 2025’s legislative changes mean employers must stay vigilant.
At Gibson Watts Global, we provide:
- EOR & PEO services: Hire employees without a UK entity.
- Compliance assurance: Payroll, pensions, and contracts aligned with 2025 legislation.
- Recruitment support: Find the right UK talent through our specialist team.
- Human touch: Expansion backed by real people, not just software.
10. Conclusion
2025 brings significant employment law updates in the UK: higher Employer NICs, increased minimum wages, pension compliance, and stronger worker rights. For international companies, these changes increase the complexity — and cost — of entering the market.
By partnering with an Employer of Record (EOR) or PEO, businesses can expand confidently, knowing every hire is fully compliant.
Looking to hire in the UK in 2025? Contact Gibson Watts Global today to learn how our EOR and PEO services can simplify your expansion.