As SMEs and HR teams settle into 2025, there is plenty of work to do. Even though one new year has just passed, there’s now another one fast approaching.
In the UK, the new financial year starts on the 6th April. For businesses, this is a great opportunity to take a step back and reconsider your finances, business operations and ways of working.
But for SMEs, especially the solo HR experts or those ‘HR-ing’ in non-HR roles, this can create a lot of extra work. And this year, the challenge is even greater - with some significant changes to employment costs and laws on the horizon.
So where do you start?
Here, we’re going to break down some of the main changes you need to make to stay profitable, productive and compliant in 2025-26.
1. Workforce planning and budget
“If they haven't already, SMEs should review payroll budgets to assess the impact of payroll costs. One key challenge will be maintaining differentials for more experienced roles, so it's important to plan for this, looking at market rates and considering restructuring pay scales to remain competitive.
In these circumstances, it's also important to review benefits packages and consider non-financial perks. For instance, hybrid/flexible working or additional leave could help retain employee loyalty without increasing costs.”
- Gemma Farina, Owner & Managing Director, GF HR Consulting
Workforce planning should be the top priority for every organisation this year. The Government has announced several measures that will significantly impact the cost of employing workers here in the UK, including rises to the National Minimum/Living Wage and National Insurance.
Long story short: Your costs are almost certainly going to rise after April 2025. Between now and then, it’s vital that businesses thoroughly audit their budgets to understand where the new funds are coming from. To do that, you need thorough and up-to-date financial records, including:
- Training expenses
- Employee benefit budgets
- Recruitment costs
- Absence costs
- Health and wellbeing adjustments
- Payroll and tax information
One way or another, businesses are going to need to decide where the extra money is coming from. This will give you and the finance team the information you need to make that plan.
2. Policy and compliance
“The Employment Rights Bill will bring about the most significant changes in UK employment legislation in recent years. The most urgent areas to focus on will include changes around day-one employment rights, flexible working, protection from third-party harassment and zero-hours contracts.
While most changes won’t take effect until at least 2026, employers should start looking at this now. You can stay informed via government updates, HR newsletters, and through expert HR consulting support.”
- Gemma Farina, Owner & Managing Director, GF HR Consulting
The Government has also announced a raft of employment law changes that will be phased in over the next two years.
The biggest of these involves day-one rights for sick pay, unpaid parental leave, paid paternity leave and paid bereavement. These will likely be phased in across 2025 and 2026, though we don’t currently have any specific dates.
It’s important that HR are aware of the changes and can ensure their policies are up to date well before they come into force. Here are some actions you can take in the meantime:
- Schedule time with the finance team to discuss the new compliance changes.
- Ensure complete and up-to-date records on payroll, bonuses, tax submissions, family leave and sickness rates. This will help you predict the financial costs of these changes when they come into effect.
- Plan a timeline for complying with new changes. You may want to make the changes now so you're ahead of the law. Alternatively, you may want to wait until the law becomes enforceable. Either way - you need to know your plan.
3. Employee engagement and development
“Investing in staff development may seem counterintuitive in the short-term. But upskilling employees can improve productivity and reduce long-term recruitment costs, while improving employee engagement and loyalty.
If employees feel undervalued, they are more likely to leave, meaning the costs of recruiting and training new staff can quickly grow in the long term.”
- Gemma Farina, Owner & Managing Director, GF HR Consulting
With employment costs quickly rising, you may not have the budget to grow as much as you’d like. Therefore, it’s important that your existing team has the tools and support to work as productively and effectively as possible in their existing jobs.
Ideally, this will involve a set training and development budget, but it’s far from essential. If you don’t have budget to spare, you may want to organise peer-to-peer training courses, run by expert employees.
Whatever form your training courses take, there are several different options you’ll need to consider:
- Mandatory training - Anything the whole company needs to acknowledge, understand and complete. This will be particularly important in 2025/26, with many important new compliance changes coming into effect.
- Skills training - This training should help to develop specific knowledge or skills, particularly around new technology, market developments and moe. In 2025/26, AI training will be a particular priority here.
- Individual training - Any training for specifics individuals or teams. Generally, this should be identified by employees themselves or their line managers and should feed into individual targets, career goals and the company's wider priorities.
It’s important to decide which of these is the biggest priority for your business and ensure your budgets are properly aligned with these wider goals.
4. Performance management
Performance management is another vital way to boost productivity and employee outcomes. With budgets and hiring getting ever tighter, this is going to be a huge priority in 2025.
To get this right, you need to ensure line managers have a clear understanding of what good performance management looks like. Here’s what that might involve:
- Require managers to set measurable performance targets for all their direct reports. Link any relevant bonuses and incentives to these targets.
- Ensure managers and employees have regular one-to-one check-ins, so feedback is continuous and iterative.
- Provide learning resources and training opportunities that contribute to the short-term and long-term goals of each employee.
- Create a regular formal performance review meeting between each employee and their line manager. Issue a standardised form for managers to fill out and require them to submit this back to the HR team.
These options are the best way to ensure employees are both supported and encouraged to achieve their very best at work.
5. Reassess your holiday policies
One of the main priorities ahead of the financial year is to review your budgets and check your team has the tools and resources to remain productive and engaged. Reassessing your holiday policies is one effective way to do this.
Poor holiday policies can increase costs to the business and create burnout for employees. To avoid this, here are a few important questions you should ask:
- Do you know how much holiday is taken and when? You can’t make any strategic decisions without the right data, so it’s important to start here.
- Are there high amounts of unused holiday? This can increase costs via payment in lieu and create high levels of burnout. If so, consider implementing a ‘use it or lose it’ policy or simply reducing the number of unused days an employee can claim.
- Are employees frequently being denied holiday? - This can create burnout and resentment. Consider implementing clearer policies on when holidays can and should be booked, so everybody is on the same page. Alternatively, you may need to discourage particular managers from refusing holiday requests.
- Consider your holiday entitlement and allowance - Offering extra holidays might be a good compromise if you can't afford payrises and bonuses this year. Consider what budget you have available and try to ensure you get the most out of it.
Done right, these questions should help you optimise your budget and improve employee engagement across the business.
Your 2025 game plan for the new financial year
“Without exception, our clients are worried about rising costs, particularly around minimum wage and National Insurance.
As a small business, there is a lot to keep on top of here and the changes can easily feel daunting. That’s why it’s so important to do your homework, prepare your budgets and seek expert support to ensure changes are implemented effectively and efficiently.”
- Gemma Farina, Owner & Managing Director, GF HR Consulting
The biggest priority ahead of the new financial year is to organise your budget for the new National Insurance contributions and any relevant changes to minimum/living wage. Since these will apply from April 2025, time is of the essence.
Next, you should start looking ahead to the changes in the Employment Rights Bill. While the first changes may well come into effect this year, we don’t have any definite dates at the moment. Therefore, it’s important to be as prepared as possible.

Author: Matt Rooke
Matt is a freelance tech writer and content manager who specialises in HR and cybersecurity. Over his seven-year career, he's created content of all shapes and sizes for brands such as Dropbox, Microsoft, Heimdal, Learnerbly, NTT, IFS, and many others. His goal is to translate complex topics into straightforward, tangible and practical advice. When not writing, you can usually find Matt geeking out over languages, music or politics.