Employment Law +

Budget 2025 – employer impact

The Chancellor delivered her November 2025 Budget, outlining key measures with significant implications for employers. Budget measures of interest to employers include:

Minimum wage increases
National Living Wage (NLW) and National Minimum Wage (NMW) rates are confirmed for April 2026 as:
• NLW for those aged 21 and over - increases from £12.21 to £12.71 per hour;
• NMW for those aged 18 to 20 - increases from £10.00 to £10.85 per hour, and
• NMW for those aged 16 to 17 and apprentices - increases from £7.55 to £8.00 per hour.

Jon Fisher, Partner, looks at how minimum wage increases will add ‘complexity’ to payrolls on Outlaw.

Government caps salary sacrifice for pensions at £2,000
The government announced new restrictions on salary sacrifice for pension contributions. From 2029, contributions above £2,000 through salary sacrifice will not benefit from National Insurance (NICs) savings. Schemes can still be left in place and it appears that employees will still get income tax relief on contributions above the cap as currently (so without having to make a claim to HMRC), although we will need to see the draft legislation when it is published to understand the full details. But crucially, NICs relief will no longer apply, removing both employer and employee NICs savings. For example, a higher-rate taxpayer contributing £10,000 via salary sacrifice would face an extra cost of £200, while the employer would lose £1,500 in NICs savings. This change could significantly impact sectors with high earners making large pension contributions, such as financial services, and comes on top of the wider increase to employer NICs earlier this year. The cap does not take effect until 2029, giving businesses time to plan.

Action points for employers will ultimately depend on their workforce composition and pension contribution structure.  This is because employees earning less than £40,000 are less likely to be impacted by the measure – they would have to pay more than the minimum auto-enrolment contribution by salary sacrifice to be caught.  For all other employees, we would expect to see an increase in employer and employee NICs.  While the changes will not come into force until April 2029 and the details are not yet certain, employers will want to consider and prepare for the following actions:

• analyse how employees are likely to be impacted by the measure and calculate the expected cost to the business;
• decide whether to make any changes to the business’s pension contribution structure, particularly where NICs savings are currently shared with employees, and consider whether sacrifice arrangements (including for bonuses and/or redundancy payments) could be replaced with a more tax efficient pension offering;
• communicate with employees about the impact of the measure and any changes to the pension contribution structure (the latter may also require amendments to contracts of employment and/or pension scheme terms); and
• make sure payroll systems are updated to implement the changes.
Amendments to contractual terms and payroll systems take time, so this is not one to leave on the backburner. Our Pensions Team explain how limitations on pensions salary sacrifice may lead to ‘cut-backs’ on Outlaw.

Apprenticeship reform
Changes to apprenticeships were announced aimed at helping young people into employment. For example, the government will fully fund SME apprenticeships for eligible people under 25. Further reforms will also simplify the apprenticeship system and make it more efficient as short courses are introduced from April 2026. More details are to be announced shortly. 

Guidance for public sector bodies 
The Treasury has updated its guidance for public sector bodies on the use of special severance payments and for the approval of senior pay.

Government invites feedback on non-compete proposals

The government has published a paper outlining options to reform non-compete clauses in employment contracts. The working paper on options for reform of non-compete clauses in employment contracts seeks input on alternative policy options and is intended to support the government’s growth mission. Options include:
• introducing statutory limits on the length of non-compete clauses;
• banning non-compete clauses in employment contracts;
• banning non-compete clauses below a salary threshold; and
• combining a ban below a salary threshold with a statutory limit.

Feedback on a number of questions is invited to help the government consider which of these proposals will be taken forward. The deadline to respond is 18 February 2026.

ERB to return to the Commons and consultations delayed

The ERB will return to the Commons on 8 December for their further consideration of the Lords' amendments, including their rejection of 'day one' unfair dismissal rights in favour of a 6 month minimum service qualification period. It is very unlikely the Commons will make any further concessions to the Lords. It also has been reported that the government will depart from the consultation timeline forecast in its July 2025 roadmap. On 24 November 2025, Laura Robinson, Deputy Director of Employment Rights at the Department of Business and Trade, addressed the Westminster Employment Forum conference on the government’s priorities for implementing the ERB. Minutes of the speech are not currently available but Practical Law, a legal content provider, reported that Robinson confirmed that, once the ERB receives Royal Assent, the government will launch consultations on ending exploitative zero-hours contracts and introducing day-one unfair dismissal rights, including the dismissal process during the statutory probationary period. The government originally scheduled these consultations for summer to autumn 2025 in its July 2025 roadmap. At that time, Robinson explained that it did not anticipate the ERB would still be awaiting Royal Assent. Despite the ERB’s continued ping-pong between the Commons and the Lords, Robinson expressed hope that the ERB implementation timeline will remain on track. 

In other ERB news, it was expected that the Office for Budget Responsibility would cost the impact of the ERB in its November 2025 Economic and fiscal outlook. However, it was unable to do so, noting, “the legislative process for the ERB has taken longer than we anticipated, meaning that there is still insufficient detail for us to incorporate it into our forecast at this event. We plan to include the ERB in our forecast when the policy is sufficiently detailed”.

Have your say: trade union ERB consultations
We want to hear your views on the live trade union ERB consultations covering union access rights and the duty on employers to inform workers of their right to join a union. 

• Complete our online questionnaire - Your feedback will help shape an anonymised, client-led response before the consultation closes on 18 December. The questionnaire follows the government’s format, but you can answer as much or as little as you like - partial responses are welcome. While all questions are optional, those marked with * are key areas we recommend focusing on. Fill out the questionnaire here: Employment Rights Bill - Have your say: Trade Union Consultations

• Join Our Online Roundtable - We’re also hosting an online roundtable discussion at 10:00 GMT on Thursday, 4 December. Places are limited to ensure meaningful engagement, so please contact Danielle Sunley if you’d like to attend.

Government widens disclosure rules for spent convictions

The government has published draft regulations which expand the circumstances where questions can be asked about spent convictions and cautions and who can apply for enhanced criminal record certificates. The draft regulations change rules in relation: to self-employed persons or personal employees engaged in regulated activity relating to children and vulnerable adults; electronic monitoring contractors; Registered Healthcare Professionals employed or engaged by the Secretary of State for Work and Pensions and its contractors/ sub-contractors; and pedicab driver licences. Employers with safeguarding regimes may want to review these changes.

This page is updated weekly with News and Views from that week’s employment weekly briefing email. For previous articles, please contact us: Employment Law Plus.

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