Employment Compensation Limit and Statutory Pay Increases in April 2025: What You Need to Know

It’s great news for employees, as the compensation limit and statutory pay are set to increase following legislative changes. These updates follow the government’s commitment to ensure employment tribunal awards and statutory entitlements remain fair and keep pace with inflation.

Below, we discuss what changes are coming under the Employment Rights (Increase of Limits) Order 2025 and the Social Security Benefits Up-Rating Order 2025. We then examine how these updates will benefit employees and the potential impacts on employers.

If you have any employment law queries or believe your rights have been breached, please reach out to Redmans Solicitors immediately. As experts in the employment law sector, we can discuss your case, provide specialist advice, and guide you through the legal process, should you be eligible.

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Compensation Limit Changes Under The Employment Rights (Increase of Limits) Order 2025

The Employment Rights (Increase of Limits) Order 2025 outlines annual increases in the compensation limit for various employment-related claims. These changes, effective from 6 April 2025, have occurred to reflect economic conditions and maintain fairness in employment tribunal awards.

Unfair dismissal compensation is one area impacted, whereby the maximum compensatory award will increase from £115,115 to £118,223. It’s important to note, though, that successful claimants will still only receive either their annual salary or the maximum compensation limit, whichever is lower. However, this update will only apply to incidents occurring after 6 April.

Another upcoming change concerns the limit on a week’s pay, which is used to calculate, among other things, the basic award for unfair dismissal compensation and statutory redundancy pay. From 6 April, this will rise from £700 to £719. Calculations for things like redundancy will subsequently be affected, meaning those made redundant could receive a higher redundancy payment.

The minimum basic award for certain unfair dismissal cases is also set to change, as is the compensatory award related to tips. If a dismissal is unfair for specific reasons like health and safety concerns, the minimum that can be awarded will increase from £8,533 to £8,763. Should an employee receive compensation for unfair treatment regarding tips, the maximum they could be awarded will increase by £135 to £5,135.

Finally, Statutory Guarantee Pay, which concerns the statutory entitlement that provides employees with financial support when their employer cannot provide work, will increase from £38 to £39 per day. Overall, these changes highlight the government’s commitment to ensuring employees receive adequate financial protection when facing unfair treatment in the workplace.

Increasing Statutory Payments as per The Social Security Benefits Up-Rating Order 2025

The Social Security Benefits Up-Rating Order 2025 introduces increases in statutory payments, similar to the compensation limit changes. Statutory parental bereavement, maternity, paternity, shared parental, and adoption pay will all rise with it. This will also apply to sick pay, with the changes occurring on 6 April.

For statutory parental bereavement, maternity, paternity, shared parental, and adoption pay, the potential statutory payments will increase from £184.03 to £187.18. However, these payments will only be provided if they’re lower than 90% of the employee’s average weekly earnings; otherwise, they will receive the lower amount. Furthermore, payments for maternity and adoption will only apply after the first six weeks.

As for sick pay, the statutory entitlement will rise from £116.75 to £118.75 per week. That being said, to qualify for such payments, individuals must satisfy the new average gross weekly earnings requirement. This has increased from £123 to £125 per week. Again, the government has made these changes to ensure statutory entitlements remain equitable and keep pace with inflation.

The Impact of Compensation Limit Changes on Employees and Employers

Following the compensation limit changes and updates to statutory payments, both employees and employers will be affected. While the changes will benefit employees, the economic burden will increase for businesses, particularly small and medium-sized enterprises (SMEs).

Impact on Employees

From an employee’s perspective, the upcoming changes are good news. If an employee faces redundancy, becomes unwell, or takes family-related leave after 6 April, they may receive higher payments. Similarly, if, after such date, their dismissal is unfair, their compensation could now increase. With all these changes, employees should feel more financially secure, particularly as the cost of living is skyrocketing.

Impact on Employers

The compensation limit changes and updates to statutory payments are less likely to be celebrated by employers. While the updates may improve their workforce’s financial position, the economic burdens they face will likely increase.

For example, if a business wants to consider redundancies after 6 April, it would have to factor in the higher statutory redundancy pay cap. With the limit on a week’s pay increasing, the calculations could rise, too. This means anyone made redundant may receive a higher payout, potentially increasing the overall costs of redundancies.

Similarly, if an employee believes their dismissal is unfair, and the incident occurred after 6 April, it could cause a more significant financial impact than it would’ve done previously. This is because the compensatory award cap is increasing by over £3,000, and the week’s pay limit is increasing, too. It’s, therefore, now more important than ever for employers to ensure that dismissals are lawful.

Our Final Thoughts

The compensation limit and statutory payment updates will significantly help employees, especially given the rising cost of living. While employers must prepare for the increasing financial burden, the changes will help ensure the workforce is more financially secure. Employees and employers alike must keep up with the updates to ensure they understand their rights and remain compliant.

If you believe your employment rights have been breached or have any questions, please contact us now. Redmans Solicitors are specialists in the employment law sector, meaning we can answer your questions and provide expert advice.

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