The Employment Rights Act is the biggest shake-up of UK employment law in a generation, and the first wave of changes took effect on 6 April 2026. Most small businesses will feel the impact through higher sick pay costs, new day-one leave rights, and tighter record-keeping. More changes follow in October 2026 and January 2027.
If you employ even one person, this guide tells you what has already changed, what is coming next, and what you need to do about it before the next round of reforms lands.
A quick note on the name: the legislation received Royal Assent in 2025 and is officially the Employment Rights Act 2025. Most of its changes only start to bite in April 2026, which is why it is widely discussed as the “2026” reforms. We use both names in this guide.
What is the Employment Rights Act?
The Employment Rights Act 2025 is a single piece of primary legislation that makes more than two dozen changes to UK employment law. It began life as the Employment Rights Bill in October 2024, received Royal Assent in 2025, and is being brought into force in stages across 2026 and 2027.
The reforms fall into four broad buckets:
- Day-one rights — removing qualifying periods for leave and statutory sick pay
- Contract reforms — restrictions on zero-hours contracts and “fire and rehire”
- Unfair dismissal changes — shorter qualifying period, no compensation cap
- Enforcement — a new Fair Work Agency to investigate non-compliance
For small businesses, the most immediate cost is the expansion of statutory sick pay. The most significant longer-term change is the reduction in the unfair dismissal qualifying period from two years to six months, which lands in January 2027.
What changed on 6 April 2026
Six provisions came into force on 6 April 2026. Every small business with at least one employee is affected by the first three.
1. Statutory sick pay (SSP) from day one
Before April 2026, SSP was only payable from the fourth day of sickness, the first three were “waiting days” with no pay. That has been abolished. SSP is now payable from the first day of illness.
The lower earnings limit has also been removed. Previously, employees had to earn at least £125 a week to qualify. Now, all employees are eligible regardless of earnings.
SSP is paid at the lower of the statutory flat rate (£123.25 per week from April 2026) or 80% of the employee’s normal weekly earnings. For a lower-paid employee, this means SSP can be less than the old flat rate, but they now receive it from day one of absence and qualify even if they previously earned below the threshold.
What this means for you: every sick day now has a payroll cost. For seasonal or part-time businesses employing low-earners, a cohort of workers who were previously ineligible for SSP now qualifies. Update your sick pay policy, brief your payroll provider, and make sure your payroll software is handling the new calculation. If you’re on an older desktop package, this is a good moment to review our best payroll software for small businesses roundup.
2. Day-one paternity and unpaid parental leave
Both paternity leave and unpaid parental leave are now day-one rights. Until April 2026, employees had to complete a qualifying period (26 weeks for paternity leave; one year for parental leave) before they could take either. That qualifying period is gone.
What this means for you: anyone you hire can take paternity leave or unpaid parental leave from their first day. Factor this into recruitment and probation planning, a new hire is now entitled to take the leave even if they have only worked for you for a few weeks.
3. Holiday record-keeping duty
Employers must now keep records of annual leave entitlements and holiday pay, and retain those records for six years. This formalises a duty that previously existed only by implication under the Working Time Regulations.
What this means for you: spreadsheet-based leave trackers still work in principle, but they become harder to defend if challenged. If you are not already using an HR platform that logs leave automatically, this is a sensible trigger to move. Our best HR software for small businesses guide covers the main options.
4. Simplified trade union recognition
The statutory trade union recognition process has been streamlined. The admissibility threshold has been lowered and the ballot rules have been simplified, making it faster for a union to secure recognition in workplaces with 21 or more workers.
What this means for you: if you have more than 20 employees, review whether union activity is likely in your workplace and make sure your management team understands the new recognition process.
5. Sexual harassment as a qualifying disclosure
Sexual harassment is now explicitly a “qualifying disclosure” under whistleblowing law. A worker reporting sexual harassment, whether about themselves or a colleague, is protected from dismissal or detriment for raising the complaint.
What this means for you: review your whistleblowing policy and your anti-harassment policy. Make sure managers are trained to handle disclosures properly and to avoid any action that could be interpreted as retaliation.
6. The Fair Work Agency
The Fair Work Agency (FWA) was established on 7 April 2026. It consolidates several existing enforcement bodies, including HMRC’s National Minimum Wage team and the Employment Agency Standards Inspectorate, and will take on enforcement for holiday pay, statutory sick pay, agency workers, and licensing for gangmasters.
What this means for you: the FWA has broader powers and a bigger remit than the bodies it replaces. Non-compliance that might previously have slipped through is more likely to be investigated. Payroll accuracy, holiday pay calculations, and right-to-work documentation all become more important. If you have not yet updated your right-to-work process, see our guide on how to run a right-to-work check when hiring employees.
What is coming in October 2026
The next wave of changes lands in October 2026. Two provisions are particularly relevant for small businesses.
Bereavement leave
A new statutory right to one week of unpaid bereavement leave will be introduced, extending beyond the existing parental bereavement leave to cover a much wider range of relationships. The government has confirmed it will include pregnancy loss before 24 weeks, which previously carried no statutory leave entitlement.
The leave is unpaid, and the detail on who qualifies as a “close” relative is being set out in regulations expected over the summer of 2026.
What this means for you: update your compassionate leave policy before October. Many small businesses already offer discretionary bereavement leave, the new right sets a statutory floor, and you need a policy that explains how the two interact.
Guaranteed hours for zero-hours workers
The government has said the new right to a guaranteed hours offer for zero-hours, low-hours and irregular-hours workers will be introduced no earlier than October 2026. Workers who have regularly worked a pattern of hours over a reference period (expected to be 12 weeks) will be entitled to an offer of a contract reflecting those hours.
Employers will also be banned from imposing “one-sided flexibility” requirements for workers to be available for shifts that are then cancelled at short notice without compensation.
What this means for you: if you use casual, variable or zero-hours contracts, start auditing your rota data now. Identify workers whose hours have stabilised into a predictable pattern, and model the cost of offering them guaranteed hours contracts before the rules come into force. Retail, hospitality and care businesses are most exposed.
What is coming in January 2027
The headline change, and the one small businesses are most worried about, arrives on 1 January 2027.
Unfair dismissal: qualifying period drops to six months
The qualifying period for ordinary unfair dismissal protection drops from two years to six months. Employees who already have six months or more service on 1 January 2027 will have protection from that date. Anyone hired from 1 July 2026 onwards will gain protection once they hit six months with you.
Note that the government’s earlier proposal of a day-one right to claim unfair dismissal was dropped. Six months is the final qualifying period.
No more compensation cap
The statutory cap on compensatory awards for ordinary unfair dismissal will be removed entirely from 1 January 2027. The current cap is the lower of £118,223 or 52 weeks’ gross pay. Once it is gone, awards will be calculated on actual financial loss with no ceiling.
Fire and rehire restrictions
The government has delayed the fire-and-rehire reforms from October 2026 to January 2027. Changing certain “restricted” terms of employment, pay, hours, pension, holiday and some other core terms, by dismissing and rehiring on new terms will become automatically unfair. There is a narrow exception for businesses in genuine financial distress.
What this means for you: between now and January 2027, you have roughly nine months to review how you handle probation, performance management, and any plans for contract changes. Three things to act on:
- Probation. Move probation to a documented, evidence-based process. Six months will still be enough time to assess performance, but only if you actually do it.
- Contracts. If you know you need to change terms of employment (a shift in working hours, a pay structure change, a pension change), get it done before January 2027.
- Recruitment decisions. From July 2026, anyone you hire gains unfair dismissal protection on their six-month anniversary. Make the hiring decision properly the first time.
Further reforms in development
Several provisions of the Act are still being consulted on and do not yet have confirmed dates. The most significant for small businesses are:
- Flexible working as a default. Refusing a flexible working request will require a business-reasonableness justification rather than simply one of eight existing grounds.
- Extended tribunal time limits. The time limit for bringing most employment tribunal claims is expected to extend from three months to six months.
- Gender pay gap and menopause action plans. Larger employers will need to publish action plans. The current threshold is 250 employees, so this will not affect most small businesses, but a reduction in the threshold is under consideration.
Treat these as background, nothing you need to act on today, but worth tracking.
A practical checklist for small businesses
Use this as a starting point for the next few weeks.
Before the next payroll run (if not already done):
- Confirm your payroll software is paying SSP from day one and applying the 80%/flat-rate calculation correctly
- Update your sick pay policy and staff handbook
- Brief managers on the new day-one paternity and unpaid parental leave rights
By summer 2026:
- Move to a holiday-tracking system that retains six years of records
- Review whistleblowing and anti-harassment policies in light of the sexual harassment disclosure change
- Audit casual and zero-hours contracts to identify workers likely to qualify for guaranteed hours offers in October
Before October 2026:
- Add statutory bereavement leave to your compassionate leave policy
- Decide how to handle guaranteed-hours offers, roll them out proactively, or wait to be asked
Before January 2027:
- Document probation processes and make sure managers are running them properly
- Complete any planned contract variations before fire-and-rehire restrictions tighten
- Train managers on the new six-month unfair dismissal threshold and the removal of the compensation cap
How to stay on top of the rules
Employment law is moving fast right now. Three free resources are worth bookmarking: Acas’s Employment Rights Act 2025 hub, the government’s Plan to Make Work Pay timeline page on GOV.UK, and the business.gov.uk employment changes campaign.
If you are hiring your first employee this year, start with our guide on hiring your first employee, then pair it with our HR software and payroll software reviews to set your processes up correctly from day one.
FAQs
Officially it’s the Employment Rights Act 2025, that’s the year it received Royal Assent. The reforms are usually discussed as “the 2026 changes” because most of the substantive provisions come into force from 6 April 2026 onwards, with further waves in October 2026 and January 2027.
Broadly, yes. Most of the reforms apply regardless of employer size. The gender pay gap and menopause action plan provisions only bite on employers with 250 or more employees. Everything else — SSP, day-one leave rights, unfair dismissal changes, the Fair Work Agency, applies to any employer with at least one employee.
From 1 January 2027, the qualifying period drops from two years to six months. Employees with six months’ service or more on that date gain protection immediately. New hires from 1 July 2026 onwards gain protection once they hit six months.
Yes, for most employers. Paying from day one rather than day four means roughly three extra days of sick pay per absence, and the removal of the lower earnings limit brings previously ineligible low-earners into scope. The cost impact depends on your sickness rate and how many of your workforce were below the old earnings threshold.
From October 2026 (at the earliest), zero-hours, low-hours and irregular-hours workers will have the right to an offer of guaranteed hours reflecting the hours they have regularly worked over a reference period. The worker can accept or decline. You are not required to hire them on a full-time permanent basis — only to make an offer that reflects their actual working pattern.
The Fair Work Agency, established on 7 April 2026, is a single enforcement body that replaces a patchwork of existing regulators. It enforces national minimum wage, holiday pay, statutory sick pay, agency worker rights, and licensing for gangmasters. It can investigate complaints, demand records, and bring enforcement action against non-compliant employers.
This guide is for general information and does not constitute legal advice. Employment law is complex and your specific circumstances may require advice from a qualified employment lawyer or HR specialist.
Article last updated: April 2026
