The Employment Rights Act 2025 received Royal Assent on 18 December 2025. It’s the most significant overhaul of UK employment law in decades — 28 separate reforms covering unfair dismissal, zero-hours contracts, family leave, sick pay, trade union rights, and workplace harassment. The changes are being phased in across 2026 and 2027, and several are already in force.
If you use an employer of record to hire in the UK, the Act doesn’t exempt you. The EOR is the legal employer, but the employment relationship it manages on your behalf is subject to the same legislative changes as any other UK employment. The difference is that the EOR carries the administrative burden of keeping up with those changes. But understanding what’s coming, and when, still matters — because several of the changes affect how you manage the working relationship, not just how payroll is processed.
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What’s changed, and when
The government committed to a phased rollout, and the key dates are:
Already in force (February–April 2026). Day-one rights to statutory sick pay, paternity leave, and unpaid parental leave. Bereaved partner’s paternity leave. Strengthened whistleblowing protections. Extended collective redundancy consultation protections. The Fair Work Agency — a new enforcement body consolidating existing labour market regulators — launched on 7 April 2026.
October 2026. The duty to prevent sexual harassment is upgraded to require “all reasonable steps,” including liability for third-party harassment. Fire and rehire — dismissing employees and re-engaging them on worse terms — becomes automatically unfair dismissal in most circumstances, unless the employer faces genuine severe financial difficulty. Employment tribunal time limits double from three to six months.
January 2027. The unfair dismissal qualifying period drops from two years to six months. The compensatory award cap is removed — tribunals will be able to award unlimited amounts for unfair dismissal, matching the position for discrimination and whistleblowing claims. Collective redundancy obligations extend to the whole organisation rather than individual establishments. Zero-hours workers gain the right to guaranteed hours based on their regular working pattern.
Some provisions — enhanced maternity protections, bereavement leave, flexible working changes — remain subject to further government consultation and will be confirmed later in 2027.
The unfair dismissal change is the one to act on now
The qualifying period dropping from two years to six months from January 2027 is the change with the most immediate practical consequence for businesses using EORs.
It means someone hired from around July or August 2026 could have unfair dismissal protection by January 2027. That’s a much tighter window than employers have been used to. The period in which you can exit an underperforming hire without full tribunal exposure has shrunk from 24 months to six.
This matters in two concrete ways. First, performance management in the first six months becomes legally consequential, not just good practice. If you want to let someone go before they acquire unfair dismissal protection, you need documented concerns, clear feedback, and a fair process. Winging it and hoping for the best worked better when you had two years. It won’t work as well when you have six months.
Second — and this is the part most businesses haven’t fully absorbed yet — the simultaneous removal of the compensatory award cap changes the financial exposure on a badly handled termination dramatically. The cap currently stands at £118,223. After January 2027, there is no cap. For a high earner dismissed without fair process, the tribunal award could significantly exceed what the old cap allowed. This isn’t a theoretical risk. It’s the new reality.
For EOR clients, the important point is that the EOR manages the process of termination — but if you’ve directed that someone be dismissed and the process was inadequate, the liability doesn’t evaporate because there’s an EOR in the picture. The EOR is the legal employer; you are the directing party. Both carry exposure when things go wrong.
Fire and rehire: check your assumptions
From October 2026, you cannot dismiss someone through an EOR and re-engage them (or a replacement) on materially worse terms without facing automatically unfair dismissal liability, unless you can satisfy a narrow financial distress exception. This exception is drawn tightly — “severe financial difficulty” is not the same as “we’d prefer to pay less.”
If you’ve been assuming that the EOR relationship gives you flexibility to adjust employment terms as business conditions change, that assumption needs reviewing before October.
The Fair Work Agency is new, and it has enforcement powers
The FWA launched in April 2026. It consolidates HMRC’s National Minimum Wage and holiday pay enforcement, and the Gangmasters and Labour Abuse Authority, into a single body with powers to investigate employers, issue compliance notices, and impose financial penalties.
The supply chain aspect is relevant for EOR users: the FWA can investigate the arrangements under which labour is supplied, not just the end employer. An EOR that runs a sloppy payroll operation is a compliance risk for you, not just for itself.
This is a reason to be more deliberate about which EOR you use, not less. An EOR that can demonstrate RTI compliance, accurate NI calculations, correct SSP administration, and clean right-to-work records is an asset. One that processes payroll correctly most of the time and deals with errors reactively is a liability that’s now being watched more closely.
What to ask your EOR
Given the scale of the changes, it’s reasonable to ask your provider directly how they’re handling the Act’s requirements:
Has your standard UK employment contract been updated for day-one SSP, paternity leave, and parental leave rights?
How are you managing the SSP change from April 2026 — SSP is now payable from day one of absence, not day four?
What’s your process for advising clients on the approaching unfair dismissal changes? Are you helping clients document performance issues during the first six months of employment?
A provider that answers these questions clearly and specifically is one that’s tracking the legislation. One that’s vague, or that refers you back to your own employment lawyer for everything, may not be doing the compliance monitoring that’s a core reason you’re paying them a monthly fee.
The direction of travel
Stepping back from the individual provisions: the Employment Rights Act 2025 is the centrepiece of the government’s Make Work Pay agenda, and the policy direction is unambiguous — more worker protection, more employer accountability, more enforcement. The Act itself describes changes coming through to 2027, and further legislation in this space is likely to follow.
For businesses using EORs, the practical implication is to treat the relationship as a genuine compliance partnership rather than a payroll outsourcing exercise. The EOR should be watching the legislation, updating its processes, and advising you when changes require action on your side. If it isn’t doing that, you’re paying for less than you think you’re getting.
