The Employment Rights Act and what it means for SMEs

The Employment Rights Act 2025 passed in December 2025, with major reforms rolling out from April 2026 through 2027. These changes represent the biggest shift in UK employment law in decades.

Key changes for SMEs:

April 2026:

• Statutory Sick Pay becomes a day-one right
• Day-one rights to unpaid paternity and parental leave
• Collective redundancy penalties doubled
• Fair Work Agency begins enforcement
• Sexual harassment whistleblower protections

October 2026:

• Stronger duty to prevent sexual harassment
• Duty to prevent third-party harassment
• Tips and gratuities consultation requirements
• Employment tribunal time limits extended to 6 months
• Trade union rights statement required

January 2027:

• Unfair dismissal rights after 6 months (down from 2 years)
• Fire-and-rehire restrictions

2027:

• Guaranteed hours for zero-hours workers
• Reasonable notice of shifts required
• Expanded bereavement leave
• Flexible working refusal must be “reasonable”
• Pregnancy dismissal protections strengthened
• NDAs banned for harassment/discrimination cases
• Equality action plans for employers with 250+ staff

We set out more details on these changes, and other measures affecting SMEs, below.

Statutory Sick Pay (SSP) – April 2026

Statutory Sick Pay is becoming available from the first day of illness, removing the current three-day waiting period. The £125 weekly earnings limit is also being scrapped, though lower earners will receive a reduced rate based on actual earnings. This means you’ll be paying SSP for three additional days per absence, which adds up quickly across your workforce. 

Since SSP costs fall entirely on employers (unlike some other statutory payments), you need to budget for these increased wage costs now. Consider reviewing your current practices to keep sick leave instances low—this could include monitoring workload and stress, introducing wellness initiatives, or investing in an EAP service. Make sure you update your SSP policies and procedures before the changes take effect in April 2026.

Day-one family leave rights – April 2026

Paternity leave and parental leave are becoming day-one rights, meaning employees can access them from their first day of employment rather than waiting 26 weeks or 12 months respectively. The existing restriction preventing paternity leave after shared parental leave is also being removed. 

It’s important to note that while the leave itself becomes a day-one right, statutory paternity pay still requires 26 weeks’ service. 

Other changes to family leave coming into force in April 2026 include the ability to take paternity leave before or after a period of shared parental leave, and a new entitlement to Bereaved Partner’s Parental Leave – for eligible fathers and partners to take up to 52 weeks of unpaid bereaved partner’s paternity leave if the mother or primary adopter of their child dies (NB this was introduced by legislation separate to the Employment Rights Act).

Employers may need to update employment contracts and leave policies to reflect these changes, and be prepared for new hires to potentially take leave immediately after starting. Employment Hero has template policies that are regularly updated to stay compliant with new legislation.

Collective redundancy penalties doubled – April 2026

The penalty for failing to properly consult on collective redundancies is doubling from 90 days’ pay to 180 days’ pay per affected employee, effective April 2026. This duty currently applies when you’re planning 20 or more redundancies “at one establishment” (generally meaning one physical workplace) within a 90-day period. The Employment Rights Act maintains this test but gives the government power to expand when collective consultation is required—for example, they might say that even with fewer than 20 redundancies at each location, you’ll need to collectively consult if you’re making a certain number of redundancies across your business overall. 

Those broader changes are expected in 2027, but the doubled penalties hit in April 2026. If you’re considering redundancies at your workplace, make sure you understand your obligations for both collective and individual consultation. Check out our redundancy guide for step-by-step guidance through the process.

Fair Work Agency – April 2026

A new government enforcement body called the Fair Work Agency launches in April 2026, and it comes with serious teeth. The FWA has powers to require individuals to attend meetings, answer questions, and provide information or documents. Enforcement officers can enter your premises to inspect records and access computers or other equipment. Employers who underpay workers will receive notices to make up for the shortfall, and the Secretary of State can take legal action against employers on behalf of employees. 

This signals that the government is taking workplace law enforcement much more seriously than before—non-compliance will have real consequences rather than being something you might get away with. Now is the time to audit your HR and payroll processes, systems, and documentation to ensure you’re compliant with existing laws and well-prepared for the many changes coming under the Employment Rights Act. Employment Hero’s Employment Operating System has everything you need to ensure compliance in these areas.

Sexual harassment whistleblower protection – April 2026

Reporting a case of sexual harassment is being added to the list of protected whistleblowing complaints from April 2026. This means that a worker who discloses sexual harassment to their employer, legal adviser, or other persons listed in whistleblowing legislation will be protected from detriment, including dismissal. Employers need to ensure that how they investigate complaints of sexual harassment doesn’t accidentally breach whistleblower protections—for example, you can’t sideline or punish someone for raising a concern. 

Relevant policies and procedures in this area may need updating to reflect that reporting sexual harassment is now protected by whistleblowing law. This change works alongside the strengthened duty to prevent sexual harassment (coming in October 2026) and signals the government’s serious approach to tackling workplace sexual harassment.

Preventing sexual harassment – October 2026

The existing duty to take “reasonable steps” to prevent sexual harassment of employees is being strengthened to require “all reasonable steps” from October 2026. While this might sound like a small wording change, it creates a stricter obligation and the government will have power to specify in regulations what counts (or doesn’t count) as reasonable steps. This is likely to include requirements like carrying out risk assessments, having sexual harassment policies and action plans in place, and establishing clear procedures for reporting sexual harassment and handling complaints. 

Confusingly, the obligation to take all reasonable steps starts in October 2026, but the power to make regulations defining what’s considered reasonable won’t come into force until 2027—creating a potential period of uncertainty. Employers already have a duty to prevent sexual harassment, so you should already be following best practices. The minimum steps you should currently be taking are set out in this article. If you’re already following the eight-step system set out by the Equality and Human Rights Commission, you’ll be well-positioned to update your processes when the 2027 regulations arrive.

Third-party harassment duty – October 2026

Employers are becoming liable for third-party harassment of their employees from October 2026, covering all protected characteristics under the Equality Act. In practical terms, this means you’ll be liable if you haven’t taken all reasonable steps to prevent harassment of your staff by clients, customers, suppliers, or members of the public. 

The protected characteristics covered include age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation. It’s crucial that you update your workplace policies and procedures to address third-party harassment risks and show you’re taking all reasonable steps to prevent it. 

This should include carrying out periodic risk assessments of where third-party harassment might occur, then putting appropriate controls in place to reduce these risks. For example, if you run a hospitality or retail business, this might mean ensuring staff don’t work alone, training employees on how to handle harassment from members of the public, installing adequate CCTV, and running poster campaigns that advise customers to treat all staff with respect.

Tips consultation requirements – October 2026

The Employment (Allocation of Tips) Act 2023 already requires you to ensure workers receive tips, gratuities, and service charges in full and that they’re allocated fairly and transparently—plus you need a written policy on how you handle tips. The Employment Rights Act strengthens these obligations by requiring you to consult with relevant workers (and/or their representatives such as trade unions) before implementing your first tips policy, and to review the policy at least once every three years with further consultations each time. 

The government has suggested these new provisions will come into force in October 2026. If you operate in a business where staff receive tips, make sure you have an adequate policy in place and that you review and consult on it according to the new laws. Need any help with this? Reach out to our HR Advisory team.

Tribunal time limits extended – October 2026

The time limit for bringing employment tribunal claims is extending from three months to six months from October 2026. By giving employees a longer window to file claims, it’s very likely that employers will face an increased number of legal cases. This makes it more important than ever to follow robust procedures concerning disciplinaries, performance management, redundancies, and grievances—especially where these might lead to dismissal. 

It’s also critical that you keep detailed records of matters that occur in the workplace like disciplinary meetings, warnings, and consultations, because managers’ memories of these events may have faded due to the increased time between the incident and any potential claim. Document everything in writing, follow proper processes every time, and make sure your procedures are bulletproof—because you’ll potentially be defending decisions that were made six months ago rather than three.

Trade union rights statement – October 2026

The Employment Rights Act makes a number of changes around trade unions, including removing restrictions on striking, picketing, and other industrial action, plus unions get increased rights to enter workplaces. The one change all employers need to be aware of is the introduction of a duty to provide workers with a statement of trade union rights from October 2026.. 

The details of what must be included in the statement will be set out in regulations. Even if you don’t have any union presence in your workplace, all employers will be required to provide employees with information about their right to join and be represented by a union. Stay in touch with the HR Advisory team, and we’ll let you know as soon as the new laws are finalized.

Unfair dismissal after 6 months – January 2027

The qualifying period for unfair dismissal claims is dropping from two years to six months effective 1 January 2027, and the compensation cap is being completely removed. Currently, most unfair dismissal awards are capped at the lower of £118,233 or 52 weeks’ pay, but this cap is disappearing entirely. This means that after six months of employment, you must follow proper dismissal procedures—for performance issues, this typically means formal performance management plans with training and improvement opportunities; for misconduct, you’ll generally need to issue formal written warnings; and for redundancies, you’ll need to consult properly and consider alternative roles. 

Currently, most businesses don’t need to follow such rigorous processes until an employee has two years’ service, but going forward these procedures kick in after just six months. You need to update your disciplinary, performance, redundancy, and termination procedures to align with the new laws, and consider ensuring probationary periods in employment contracts don’t exceed six months. Given that penalties are now uncapped and employees have six months (not three) to bring claims, the risk of getting dismissals wrong is significantly higher.

Fire-and-rehire restrictions – January 2027

Employers are being prevented from dismissing employees and re-engaging them on less favorable terms and conditions from January 2027, a practice known as “fire-and-rehire” that’s generally used as a last resort when businesses desperately need to reduce costs to stay afloat. The Employment Rights Act makes it automatically unfair to dismiss an employee (regardless of length of service) if the dismissal is because they won’t agree to a “restricted variation” of their contract. These restricted variations include changes to pay, hours, holidays, or clauses that would let you unilaterally vary these matters in future. The provisions also prevent you from replacing workers with agency workers or contractors to do the same job when employees won’t accept contract changes. 

There’s one exception: you can still fire-and-rehire if it’s necessary to prevent financial difficulties affecting your ability to carry on the business, and in all the circumstances, you couldn’t have reasonably avoided making the variation. Employers need to be extremely careful when dealing with situations where they want to change an employee’s terms and conditions but face resistance—in particular, make sure the employee can’t argue that you’ve threatened dismissal if they don’t agree. Get advice from our HR Advisory team before attempting to vary terms, especially where employees are pushing back.

Guaranteed hours for zero-hours workers – 2027

Workers on zero-hours contracts (and those with a low number of guaranteed hours) will have a right to be offered guaranteed hours based on the hours they actually work over a “reference period”—likely to be 12 weeks according to government suggestions, though this will be confirmed in regulations. After each reference period ends, you’ll need to offer guaranteed hours matching the hours they worked, and this continues until their contract guarantees more than a minimum threshold of hours (to be specified in regulations). For example, if someone on a zero-hours contract works 10 hours per week during the first reference period, you must offer them 10 guaranteed hours per week going forward. If they accept and then work 25 hours per week over the next period, you must offer 25 guaranteed hours. 

Once they’re above the threshold—say, 20 hours per week—the duty to keep adjusting based on hours worked stops. It’s important to understand that workers can refuse the offer and stay on zero-hours if they prefer. This will be challenging for industries that need workforce flexibility like hospitality and retail, but there are some workarounds: the law only applies to workers above a minimum hours threshold; you can offer guaranteed hours on fixed-term contracts where it’s “reasonable” to do so (for example, in seasonal businesses); and the government plans to create different arrangements for businesses with temporary staffing needs. These changes roll out in 2027 and can only be opted out of through a collective union agreement.

Reasonable notice of shifts – 2027

A new obligation is coming in 2027 requiring you to provide reasonable notice when requesting or requiring a worker to work a shift, and reasonable notice must also be provided when changing or canceling a shift. This applies to workers and employees on zero-hours and low-hours contracts, as well as other workers who work variable shift patterns. Agency workers are also covered, with responsibility shared between the agency and the end hirer. Going forward employers will need to give workers reasonable notice of a shift specifying the date, start time, end time, and number of hours to be worked. 

Guidance on what counts as reasonable notice will be set out in future regulations, though it’s expected that in emergencies, very short notice might be acceptable. The important part is that you’ll have to pay compensation to employees when you don’t provide reasonable notice—so last-minute roster changes will cost you money. If you’re accustomed to rostering workers with high flexibility, start thinking now about the notice you provide for shifts and shift changes. Given the potential for penalties, review your current processes and consider improvements you can make in this area. Like the guaranteed hours provisions, these changes take effect in 2027 and can only be contracted out through a collective union agreement.

Flexible working reasonableness test – 2027

Since April 2024, employees have had a day-one right to request flexible working, and you can only refuse if you genuinely believe one of the prescribed statutory reasons applies—things like the changes being too costly, negatively impacting work quality, or affecting service levels. The test is currently subjective: if you genuinely think one of the grounds applies, that’s enough. 

The Employment Rights Act is introducing a reasonableness assessment into this test from 2027, meaning you’ll need a reasonable basis for refusing on those grounds—if an employment tribunal disagrees that your refusal was reasonable, you can face a financial penalty of up to eight weeks’ pay. 

Going forward, you’ll also be required to explain why you consider the refusal reasonable. Additionally, the government will have power to make regulations specifying exactly what form consultation must take when dealing with flexible working requests. 

Employers need to update their existing policies and procedures to align with the new laws, particularly ensuring consultation meets any new regulatory requirements. You might want to look again at your flexible working approach, including “return to office” rules—clearly check and confirm the business reasons for your current arrangements so they’re consistent and well-explained, ready for when employees make requests or challenge whether your arrangements are reasonable.

Pregnancy dismissal protections – 2027

Protection against dismissal for pregnant employees and those taking or returning from statutory family leave is being strengthened in 2027. The details will be set out in regulations, but the government has previously stated it intends to make it automatically unfair to dismiss a pregnant employee or new parent until they’ve been back at work for at least six months after giving birth or taking statutory family leave, except in specific circumstances like genuine redundancy. 

While no-one objects to protecting pregnant women and those returning from maternity leave from unfair discrimination, sometimes it’s necessary to reduce headcount, particularly when a business faces hard times—the new measures will make this more difficult when pregnant employees or those who’ve just taken maternity leave are involved. Employers will need to watch carefully to see exactly how the regulations are phrased and ensure their termination processes align with the new laws. Our HR Advisory team will be able to guide you through these changes when they take effect.

NDA ban for harassment and discrimination – 2027

Any provision in an agreement between you and a worker—whether it’s an employment contract, settlement agreement, or standalone NDA—will be void to the extent it prevents either party from discussing or making allegations about harassment or discrimination. This applies whether someone is a witness or a victim. However, the new law won’t apply to “excepted agreements,” with details coming in future regulations. The government has suggested that excepted agreements might include cases where the employee (not the employer) specifically requested an NDA. 

It’s not clear exactly when these provisions will take effect, but they won’t apply retrospectively, meaning existing agreements remain intact. Employers need to take extreme care when entering into NDAs or settlement agreements, given that matters dealing with harassment or discrimination won’t be capable of being silenced by the agreements, subject to very limited exceptions. You’ll need to review and update your current template NDAs well before these provisions come into force.

Equality action plans – 2027

Organisations with 250 or more employees already have to publish gender pay gap information, but the Employment Rights Act is strengthening this duty. Future regulations will require such employers to develop and publish equality action plans showing the actual steps they’re taking to address gender pay gaps, plus the steps they’re taking to support employees going through menopause. 

There will also be power in regulations to require you to publish information about any service providers you contract with for outsourced workers—the idea being that organisations should be held accountable for gender pay gaps in companies they outsource from, motivating them to support efforts to improve gender equality in linked organisations. When the new provisions come into force in 2027, large employers will need to pay careful attention to ensure they comply with the new duties and publish all required information within the relevant time limits. Failure to do so will risk financial penalties and reputational damage—neither of which you want.

Bereavement leave – 2027

Bereavement leave is expanding beyond the current two weeks for child loss or stillbirth after 24 weeks to cover a wider group of family members and pregnancy loss before 24 weeks—the exact family members and leave periods will be specified in future regulations. 

Annual leave record-keeping – Date TBC

New record-keeping obligations are coming for annual leave, requiring you to keep adequate records for six years to demonstrate compliance with various holiday entitlements and payments. This includes records showing compliance with standard annual leave entitlements, additional annual leave, entitlements for irregular hours and part-year workers, pay for annual leave, payments in lieu of outstanding holiday on termination (including carried-forward holiday), and specific provisions for irregular hours and part-year workers. 

The government hasn’t indicated when it plans to bring these changes into force. Employers will need a robust payroll system with capabilities to easily show annual leave history and entitlements. Employment Hero’s payroll software is a world-leader in this area and handles all of this automatically.

Need more help?

We get it, staying up to date with employment law is difficult and time consuming. So if you need more help understanding your current or future employment law obligations our HR Advisory service is here to help. Our HR Advisory service gives you unlimited access to a team of HR experts available to guide you through the maze of rules and regulations.

Allow Employment Hero to ease the anxiety of staying up to date with legislation, so you can focus on what really matters – your people. To learn more, talk to one of our team today.