The latest Budget announcement signalled more than just economic forecasts and tax tweaks. It marked a clear shift in the role of HR. With rising employment costs, changing reward structures and a raft of new employment legislation on the horizon, HR teams are moving from compliance managers to strategic workforce architects.

For people professionals, this isn’t just a policy update – it’s a call to action. Here’s how HR and L&D leaders can get ahead of the changes and build long-term resilience into their workforce strategy.

Rising Wages and Fiscal Drag: Rethinking Reward and Retention

Pay is Going Up – and So Are Expectations

The National Living Wage is set to rise to £12.71 per hour for those aged 21+ from April 2026, while the National Minimum Wage for 18–20 year olds will jump to £10.85. These increases are good news for workers – but they come with a cost.

What HR teams need to do now:

• Plan for the ripple effect: Wage increases don’t stop at the minimum. Organisations must review internal pay structures to prevent compression, ensure fairness, and maintain morale.
• Re-evaluate reward strategy: Now is the time for a full pay and benefits benchmarking exercise. Your offer needs to stay competitive – not just at entry level, but across your organisation.

The Hidden Cost of Fiscal Drag

The continued freeze on Income Tax and National Insurance thresholds until 2031 means more employees will be pulled into higher tax bands as their salaries rise. This reduces take-home pay and may fuel dissatisfaction, especially among mid-level staff.

What HR can do:

Highlight the full package: Use total reward statements to showcase the value of benefits like flexible working, health insurance, and development opportunities.

Be transparent: Clearly communicate the impact of fiscal drag on take-home pay during salary reviews. Consider financial wellbeing sessions to support understanding and engagement.

Benefits and Compliance: Prepare for Change

Pension Salary Sacrifice Cap: A Shift for Higher Earners

From April 2029, National Insurance relief on pension salary sacrifice will be capped at £2,000 per year. This will affect high earners and change the employer cost-benefit equation.

What HR should do:

• Run an impact assessment: Identify employees contributing above the new cap and model the cost implications.
• Adapt your benefits offer: Explore other ways to deliver value, such as boosting learning benefits or offering wellbeing support.

Payrolling Benefits-in-Kind (BiK): A New Admin Challenge

Mandatory payrolling of BiK has been pushed to April 2027, but the preparation starts now.

Next steps:

Get systems ready: Work with payroll providers to ensure your systems can manage real-time BiK reporting, replacing P11Ds with a streamlined process.

New Employment Rights: A More Supportive Workplace

Statutory Sick Pay Reform (Expected April 2026)

A more inclusive SSP scheme is coming:

• Pay from day one (no waiting days)
• Removal of the lower earnings limit
• Pro-rated payments for low earners

What this means for HR:

• Budget accordingly: Increased SSP liability, especially for short-term absences – must be factored into financial planning.
• Train your line managers: Update policies and equip managers to handle early interventions and return-to-work conversations effectively.

Expanding Family Leave Rights

From 2025 onwards:

• Neonatal Care Leave: Up to 12 weeks’ leave for parents of babies in neonatal care.
• Paternity Leave: Becoming a day-one right, with greater flexibility in how it’s taken.

HR action:

• Refresh your policies: Ensure payroll and HR systems are ready to support these changes.
• Communicate clearly: Help employees understand their new rights and how to access them.

New Right to Guaranteed Hours

Variable-hours workers will soon have the right to request a contract that reflects their actual working pattern.

What HR should do:

Decide your strategy: Will you proactively offer stable contracts now, or prepare for more admin when requests start rolling in?

Audit your workforce: Understand which employees are regularly exceeding their contracted hours.

What This All Means for HR: A Strategic Mandate

The message from Budget 2025 and the wider legislative landscape is clear: HR has a strategic role to play in navigating change and shaping a resilient, future-ready workforce.

For Avado learners and CIPD-qualified professionals, this is your opportunity to lead:

• Redesign reward structures: Factor in fiscal drag and the pension salary sacrifice cap to maintain competitive, motivating offers.
• Champion wellbeing and inclusion: Be at the forefront of policies that support health, flexibility and work-life balance.
• Get ahead of compliance: Prepare now for changes like BiK payrolling and flexible contract reforms to avoid future disruption.

In a world of rising costs and evolving expectations, HR isn’t just supporting the business – it is the business. Your expertise in people strategy will be the difference between simply reacting to change, and leading through it.

How Avado can help

At Avado, we help HR professionals stay ahead of legislative change and best practice. Our CIPD-accredited HR courses include the latest updates on employment law, employee relations, and inclusive workplace strategy.

Whether you’re looking to upskill, gain your CIPD qualification, or guide your organisation through change, we’re here to support your journey. Explore our CIPD courses and prepare your team for what’s next!