Small business leaders in the UK are bracing for a storm of Employment Rights Act (ERA) measures that will fundamentally change the jobs market as they know it.
With some of the most significant measures such as statutory sick pay eligibility, parental leave rights and the enforcement of the Fair Work Agency just days away, SMEs are carefully reconsidering their approaches to hiring, managing and dismissing employees – and the penalties for getting it wrong are steeper than ever.
According to a recent Employment Hero survey, the scale of that concern is considerable. As many as 84% of small business leaders anticipate having to make operational changes to mitigate risks associated with the reforms. Perhaps more telling is the fact that almost a third of businesses (30%) plan to increase prices to absorb the costs, a move that threatens to undermine the Government’s aim of improving workers’ real disposable income through April’s minimum wage increases.
The question facing thousands of SMEs now is whether they have the resources to weather this tempest of changes when they finally arrive.
What’s Changing on 6 April?
The Employment Rights Act has been rolling out in phases since receiving Royal Assent on 18 December last year. But the first major wave takes effect on 6 April, with further reforms scheduled for autumn 2026 following ongoing consultations. The key changes taking effect in April include:
Parental Leave Rights Become Day-One Entitlements
What’s changing: From 6 April 2026, both paternity leave and unpaid parental leave will become day-one rights. Currently, employees must have 26 weeks’ continuous service before they can take statutory paternity leave and 12 months’ service before they can take unpaid parental leave.
The impact: The change removes a significant barrier for working parents, particularly fathers and partners who previously had to wait six months before they could take time off for a new baby. According to Government estimates, an additional 32,000 fathers per year will be able to access paternity leave immediately, while 1.5 million parents will gain earlier access to unpaid parental leave to share caring responsibilities.
For employers, that means new hires may request:
- Statutory Paternity Leave: Up to two weeks of leave immediately upon starting a new job if their partner gives birth or they adopt. Paternity leave is unpaid, unless the employee taking it has at least 26 weeks’ service, in which case it is paid at the statutory rate of £184.03 per week or 90% of average weekly earnings, whichever is lower. These rates will increase in April.
- Unpaid Parental Leave: Up to 18 weeks of unpaid leave per child (up to the child’s 18th birthday) without the previous 12-month qualifying period
The Government has also introduced Bereaved Partner’s Paternity Leave from April 2026, providing up to 52 weeks of leave for fathers and partners who lose their partner before their child’s first birthday – addressing a gap where bereaved parents previously had to rely on employer compassion rather than statutory protection.
What businesses should consider:
- Updating employment contracts and handbooks to reflect day-one parental leave entitlements
- Training managers to handle parental leave requests from new employees sensitively
- Planning for the possibility that new hires may request parental leave during probation periods
- Reviewing workforce planning to account for potential early-stage parental leave in customer-facing or operational roles
- Ensuring payroll systems can process statutory paternity pay from day one of employment
Statutory Sick Pay from Day One
Perhaps the most nerve-inducing measure this quarter is the arrival of statutory sick pay (SSP) reforms. Once implemented, the three-day waiting period for SSP will be removed and the £123 weekly earnings threshold scrapped. Part-time and lower-income workers who previously didn’t qualify will now receive SSP from day one of illness.
The Government estimates the changes will cost businesses approximately £400 million annually across the UK economy, with the burden falling disproportionately on SMEs employing significant numbers of part-time workers.
The timing has sparked concern among business leaders already grappling with increased employment costs. Anna Leach, chief economist at the Institute of Directors, told the Financial Times: “Given where the labour market is now, even if you were to agree this is the right thing to do, you wouldn’t do it now. It’s really freaking businesses out, because it’s so much all at once, a year after big increases in employment costs and when there is still a lot of [geopolitical] uncertainty.”
Ben Willmott, head of public policy at the Chartered Institute of Personnel and Development (CIPD), has also repeatedly warned that small businesses are concerned about the magnitude of the impending changes. Referencing CIPD research showing that 37% of employers plan to reduce the recruitment of permanent staff due to at least one or more of the ERA’s reforms, he said:
“We need to see a major communication campaign from Government to ensure smaller businesses in particular are aware of, understand and can prepare for the new legal obligations and know when they come into effect. Just as important, the Government needs to ensure that Acas and the wider dispute resolution system have sufficient resources to help micro and small firms comply and avoid disputes and costly tribunal claims.”
Redundancy Penalties Double
For businesses facing difficult restructuring decisions, the stakes just got significantly higher. Maximum protective awards for failing to consult properly on collective redundancies of 20 or more employees at one individual worksite or branch will double from 90 days’ pay to 180 days’ pay per affected employee. For a business making 20 people redundant at £30,000 average salary, maximum penalties rise from £164,000 to £328,000.
While the penalty doubling takes effect in April 2026, broader changes to collective redundancy obligations – including potentially broadening the circumstances when collective consultation obligations arise – won’t come into force until 2027. For now, the current establishment-based threshold remains, but the financial stakes for non-compliance have doubled.
The Fair Work Agency: Proactive Enforcement Arrives
The much-discussed Fair Work Agency (FWA), which consolidates the enforcement of employment rights, launches in April with powers that represent a fundamental shift in how employment law is enforced. Unlike the current system, where enforcement relies primarily on individual employees bringing complaints, the Agency can conduct workplace inspections (including unannounced visits), investigate suspected breaches, bring tribunal claims on behalf of workers, and issue financial penalties up to £200,000 for serious violations.
For businesses that have been relaxed about record-keeping, calculating holiday pay accurately, or ensuring minimum wage compliance, its establishment will likely bring with it substantial compliance complications.
Following the March 2026 announcement of the appointment of former Mining Remediation Authority Chief Executive Lisa Pinney as CEO of the FWA, Employment Rights Minister Kate Dearden reiterated the authority’s mission to ensure “workers get the rights and protections they are entitled to, while creating a simpler, fairer system and a source of advice for employers”.
However, six major business groups — including the British Chambers of Commerce, the CIPD, and the Federation of Small Businesses — jointly called for practical and accessible guidance tailored to small businesses, stating that implementation requires “agreeing guidance and support for businesses to understand and effectively implement the many changes, alongside sufficient resources for the Fair Work Agency and tribunal system.” Whether such support materialises could determine how many businesses successfully navigate the transition.
Lora Murphy, editor and host of the Behind the Button podcast for the Chartered Institute of Payroll Professionals (CIPP), highlights the uncertainty surrounding the Agency’s practical operations.
Speaking to Employment Hero, she says: “We know that it’s going to oversee NMW, SSP, and holiday pay,” noting that “there hasn’t been that much guidance around it”.
What businesses do know is that the FWA will have “a broader remit for audit than has previously happened,” including the power to bring tribunal claims on behalf of employees.
“So employees won’t necessarily have to bring the organisation to tribunal themselves,” Lora explains, though she cautions that “we don’t know the detail of that yet”.
For payroll and HR teams, Lora expects significant implications around recordkeeping. “The FWA is going to be overseeing SSP, which obviously there’s been a massive change to it, and also holiday pay. So I’m sure there’ll be a lot more around record-keeping and how to deal with an audit on those different areas of pay.” She adds: “I think once the more concrete guidance comes out, that’s when people will start asking questions.”
The Capacity Question
The challenge facing many small businesses isn’t solely in terms of understanding what’s required from a compliance perspective, but finding the capacity to implement it while managing day-to-day operations and attempting to keep costs down.
In the final weeks before implementation, businesses are prioritising updating employment handbooks, confirming payroll systems can handle day-one SSP, and training managers on documentation requirements.
What’s Coming Next
Of course, beyond April, the Employment Rights Act will continue rolling out in phases throughout 2026 and into 2027. Here’s a snapshot of some of the dates that businesses need to be aware of:
October 2026
- Employers will be liable for harassment of staff from third parties
- Tighter laws to protect employees receiving tips
- Time-limit for bringing employment tribunal claims will increase from 3 months to 6 months
1 January 2027
- Six-month unfair dismissal threshold takes effect
- “Fire and rehire” restrictions
2027 (dates TBC)
- Zero-hours contract reforms (guaranteed hours based on hours worked)
- Right to reasonable notice of shifts
- Broadening of collective redundancy consultation obligations
- Enhanced protections for pregnant workers and new mothers
- Broadening of bereavement leave entitlements
For a complete breakdown of all Employment Rights Act changes and implementation dates, visit Employment Hero’s comprehensive compliance guide.
With such major changes around the corner , whether small businesses can implement these reforms without cutting jobs or raising prices remains to be seen.
