3 big payroll changes for HR teams and employers in 2025

Managing payroll and HR is never a one-size-fits-all challenge. And 2025 is proving to be no exception.

Big changes are on the horizon that will directly impact your payroll processes, employee benefits, compliance practices, and the company’s bottom line.

Stay calm. With a proactive mindset and the right tech tools, you can turn these potential challenges into opportunities for smoother operations and a satisfied workforce.

This article provides you with an overview of three key payroll changes taking effect in 2025.

Here’s what we cover:

Employers’ National Insurance increase

In April 2025, UK employers will face a significant rise in National Insurance contributions (NICs) that will impact staff costs, cash flow, and margins for many small and growing businesses.

The change increases the NIC rate from 13.8% to 15%, while the threshold for when employers start paying NICs will drop from £9,100 to just £5,000 per year.

These adjustments mean employers and employees will see changes in their National Insurance liabilities.

Impact on employers

Payroll expenses are set to climb, adding pressure to budgeting and potentially squeezing profit margins.

Payroll leaders like you will need to accurately account for these increased costs in your payroll budget, ensuring that deductions are compliant with new regulations.

Note: not all businesses will be impacted by the rise in employers’ National Insurance. In fact, some will benefit from the upcoming Employment Allowance offset, which we’ll explain in the next section.

However, many will face significantly higher payroll costs, and 2025 is predicted to be the most expensive year on record for employers of minimum wage workers.

Impact on employees

An increase in employers’ National Insurance won’t directly impact employees.

However, there might be an indirect impact.

For example, some employers might not be able to offer pay rises to employees as they’ve got less in their payroll budgets to distribute.

Key dates

• The rise in employers’ National Insurance comes into effect from 6 April 2025.
• The secondary threshold of £5,000 a year will be in effect from 6 April 2025 until 5 April 2028.

Employment Allowance changes

There are key changes to the Employment Allowance coming in to help smaller businesses offset payroll cost increases.

The purpose of the Employment Allowance is to help eligible employers reduce their annual secondary Class 1 National Insurance (NI) liability.

Currently, you can only claim up to a maximum of £5,000 each tax year. But from April 2025, the allowance is increasing to £10,500.

The 2024 Autumn Budget also announced the removal of a significant restriction to the Employment Allowance.

Currently, employers that have incurred a secondary Class 1 NI liability of more than £100,000 are unable to claim the allowance.

But this will be removed from 6 April 2025.

Impact on employers

The changes highlighted above open up the Employment Allowance to all eligible businesses and charities, regardless of how large their secondary Class 1 NICs liabilities were in the tax year prior to the year of the claim.

According to the 2024 Autumn Budget, these changes will mean 865,000 employers will pay no NICs in 2025.

However, you’re still not eligible to claim the allowance if your business is doing more than half of its work in the public sector, such as local councils and NHS services (unless you’re a charity).

You also can’t claim if your company only has one director and that person is the only employee liable for secondary Class 1 NICs.

It’s important to accurately calculate these changes to ensure that your budgeting and forecasting models are up to date.

Key dates

• April 2025: the new Employment Allowance guidelines come into effect. Ensure that your payroll software is updated by this date to reflect the changes.
• Budget announcement dates: monitor upcoming government budget announcements, such as 2025’s Spring Statement and Autumn Budget for any last-minute tweaks or additional changes that could affect allowances.
• Payroll review cycles: align your internal audit and payroll review schedules with these key dates to double-check that all systems are compliant and functioning correctly.

The Neonatal Care (Leave and Pay) Act 2023

Neonatal Care Leave and Pay is a new statutory requirement that will provide additional support for employees with newborns who require intensive medical care.

These changes include leave periods and pay provisions to ease the financial and emotional burdens during this critical time.

Impact on employees

The leave and pay policies offer vital support during challenging circumstances, ensuring that parents can focus on their child’s care without undue financial stress.

Eligible employees will receive statutory neonatal care pay at the current statutory rate for the duration of their leave.

Coverage includes any parent (or primary carer) of a baby born on or after 6 April 2025 admitted to neonatal care for at least seven continuous days within the first 28 days of life.

This includes mothers, fathers, adopters, intended parents in surrogacy arrangements, and other primary carers for up to 12 weeks per affected child, on top of any existing parental leave entitlements.

Impact on employers

This change requires adjustments in leave management systems and payroll calculations to accurately reflect the updated entitlements. It also underscores the importance of offering competitive, family friendly policies.

Neonatal care leave is a day-one right expected to benefit around 60,000 new parents.

Key dates

• 6 April 2025: the Neonatal Care Leave and Pay Act comes into effect. From this date, new entitlements and extended leave provisions for employees with newborns requiring intensive care will officially be available.

Preparing for payroll changes in 2025

With these changes taking effect soon, it’s important to take action now by building a strategy to update your systems for a smooth transition.

The good news is there are technology solutions, specifically automation and analytics, to help you easily manage each task.

Automatic data processing for payroll

Modern payroll systems can automatically update to reflect the new National Insurance thresholds and rates, eliminating manual errors and saving you time.

Imagine having a self-updating system that seamlessly integrates regulatory changes.

This means you’re always one step ahead, and your calculations remain compliant without you needing to constantly change them.

Payroll dashboards and forecasting in real time

Real-time dashboards and financial forecasting tools are game-changers.

They allow you to monitor cash flow, identify potential issues before they balloon, and customise reporting data to your unique needs.

You can simulate the financial impact of changes such as the rise in employers’ National Insurance, adjust budgets accordingly, and even explore cost-saving measures such as salary sacrifice schemes with these kinds of tools.

These simulations not only streamline your workflow but also empower you to advise senior management on strategic financial planning.

Employee self-service portals for HR and payroll

Self-service employee portals further support transparency within your workforce.

They enable your team to view updated pay breakdowns and understand how these regulatory changes affect their net income.

This proactive communication reduces uncertainty and builds trust, so everyone’s on the same page.

Integrating these portals with your HR systems helps to manage policy adjustments, such as neonatal care leave requirements, in a consistent and user-friendly way.

Advanced analytics for additional savings

Advanced analytics can help you pinpoint inefficiencies and identify areas where automation can drive further savings.

For example, automated alerts can notify you of discrepancies or upcoming compliance deadlines, ensuring you never miss a critical update.

By reducing that layer of administrative workload, you can focus more on strategic tasks, such as optimising workforce planning and enhancing employee engagement.

Final thoughts: Do less, manage more in 2025

In a landscape of rising costs and tighter margins, embracing technology isn’t just about keeping up. It’s about gaining a competitive edge.

By automating routine payroll tasks, streamlining communications, and providing real-time insights, technology empowers you to manage changes proactively and effectively.

Ultimately, this not only helps safeguard your business against regulatory challenges but also improves overall employee satisfaction, making your HR and payroll processes more resilient and forward-thinking.