What does the Employment Rights Act 2025 mean for your Business?

Royal Assent was given to the Employment Rights Act 2025 on December 18^th 2025.  This Act, hailed as the biggest overhaul of employee rights in a generation, forms one of the cornerstones of the Governments economic strategy to ‘make work pay’.  Critics have pointed out that increased financial burdens to businesses, coupled with higher compliance costs and tighter bureaucracy, may inhibit growth and have unintended consequences to the labour market. So what does the Employment Rights Act 2025 mean for your Business?

Legislation Changes

The following changes will be phased in during 2026 and 2027:

Effective Date	Legislation Changes
Feb 2026	Upgraded protection and powers for Trade Unions simplifying union recognition processes and strengthening safeguards for workers taking industrial action
April 2026	Sick Pay (SSP) will now be payable from the first day of illness instead of the fourth day.  The lower earnings limited which prevented lower paid employees from being eligible for sick pay will be removed.
	Paternity Leave will become a ‘day one right’ allowing an employee to give notice of their intention to take paternity leave from the first day of employment.  The restriction on taking paternity leave after shared parental leave will be removed.
	Parental Leave will also become a ‘day one right’ from the first day of employment.
	Collective redundancy - The ‘protective’ award for failure to consult in collective redundancy will double from 90 days to 180 days’ pay.
	Sexual Harassment will become a ‘qualifying disclosure’ under whistleblowing law.  Employees making a sexual harassment disclosure will be protected from detriment.
	Employers with more than 250 staff will need menopause and gender pay gap action plans.
	The Fair Work Agency will be established to consolidate and enforce a wide range of employment rights, including the National Minimum Wage, holiday pay, and agency rules.
1st April 2026	National Living Wage will increase to: £12.71 per hour for workers aged 21 and over £10.85 per hour for those aged 18 – 20 £8.00 per hour for those aged 16 – 17 £8.00 per hour for apprentices
6th April 2026	SSP rate increases to £123.25 per week SMP, SPP, ShPP, SAP, SPBP and SNCP rate increases to £194.32 per week
October 2026	‘Fire and Rehire’ practices curbed making it automatically unfair to dismiss employees for refusing a change to core contractual term except in cases of severe financial difficulty.
	Stronger protections for sexual harassment.  Employers will be required to take ‘all reasonable steps’ to prevent sexual harassment and will become liable for harassment of their employees by third parties (like customers or clients) if they fail to take preventative measures.
	Time limits for making a claim to an employment tribunal will increase from 3 months to 6 months for all claims
January 2027	Protection from unfair dismissal will be reduced from 2 years to 6 months.  The statutory cap on compensation for unfair dismissal claims will also be removed, meaning tribunals can award unlimited compensation.
2027 (TBC)	There will be a new right to statutory bereavement leave
	Stronger dismissal protections will be introduced for pregnant workers and those returning from maternity leave
	Workers on zero hours contracts will have the right to guaranteed working hours and will have the right to compensation if a shift is cancelled or changes at short notice
	Flexible Working will a default right from day one, clearer processes for employers to agree or reasonably reject requests

Key Actions Required

To ensure compliance, key actions for employers will be:

• Auditing and reviewing current contracts and policies, communicating these changes to staff and providing training where necessary.  Particular attention will need to be given to clauses and policies relating to sickness, paternity, parental leave, harassment and flexible working.

• Reporting on and reviewing salaries to identify any employee below the NMW and NLW on minimum wage rates.

• Tightening absence management processes to ensure frequent or short-term sickness is managed effectively.  Conducting return to work interviews will become more important.

• Reviewing recruitment, probation and dismissal practices to align with new shorter qualifying periods for unfair dismissal claims.

• Preparing to make flexible working the default and reviewing requests promptly, as it becomes a day-one right.

• Training management on new day one rights, how to handle flexible working requests, managing attendance, dealing with third party harassment and union engagement.

• Considering moving workers on zero-hours contracts to more stable arrangements.

Conclusion

In conclusion, although the aims are laudable many SME’s will be impacted by reduced flexibility, tighter rules, higher compliance risk, and greater pressure on their cash flow.

If your HR capacity is limited and you are concerned about implementing these changes please contact me at annette@hbhrs.co.uk or phone 07748 713936 for further advice or support.