Employment Rights (Increase of Limits) Order 2025: Key Changes and Implications

Overview of the 2025 Changes

The Government has laid the draft Employment Rights (Increase of Limits) Order 2025 before Parliament, proposing updates to the statutory rates applicable to certain awards of employment tribunals and other amounts payable under employment legislation. These changes, if approved, are set to take effect from 6^th April 2025. The proposed adjustments reflect the ongoing commitment to align statutory compensation limits with economic conditions, particularly inflation, ensuring that employees receive fair compensation in line with the cost of living.

Key Changes in Statutory Rates

The draft order outlines several key changes to statutory rates, which are crucial for employers to understand:

• Cap on a Week’s Pay for Statutory Redundancy Pay Calculations: The cap on a week’s pay, which is used for calculating statutory redundancy pay, will increase from £700 to £719. This adjustment is significant as it directly impacts the amount employees can receive in redundancy situations, ensuring that compensation keeps pace with inflation and the rising cost of living.
• Limit on Compensatory Awards for Unfair Dismissal: The maximum compensatory award for unfair dismissal is set to rise from £115,115 to £118,223. This increase is particularly important for employees who have been unfairly dismissed, as it enhances the potential financial redress available to them, reflecting the need for adequate compensation in light of economic changes.
• Statutory Guarantee Pay: The statutory guarantee pay, which is the amount payable to employees when they are laid off work, will increase from £38 to £39 per day. This change ensures that employees are better supported during periods when work is unavailable.

Implications for Employers

The increase in statutory limits means that potential liabilities in cases of redundancy and unfair dismissal will rise. Employers should consider the financial implications of the increased limits on the business and may need to adjust budgets to accommodate higher potential payouts in redundancy and unfair dismissal cases, ensuring that they remain financially viable while complying with legal obligations.

Inflation and Economic Conditions

The increases in statutory limits are informed by economic indicators, such as the retail prices index (RPI), which measures inflation. The RPI has shown significant increases in recent years, prompting the government to adjust statutory compensation limits accordingly. This ensures that employees receive compensation that reflects the true economic value of their entitlements, maintaining fairness and equity in employment law.

Conclusion

The draft Employment Rights (Increase of Limits) Order 2025 represents an update to statutory compensation limits, reflecting the government’s commitment to ensuring fair and adequate compensation for employees in line with economic conditions. Employers must prepare accordingly for these changes, ensuring compliance with the new limits and understanding the implications for employment disputes.