Employment Rights Act update: What the reforms mean for small and medium-sized employers 

The Employment Rights Act 2025 has been described as the most significant overhaul of UK employment law in a generation. For many business owners, the headlines have been unavoidable. The difficulty is that the headlines only tell part of the story. The practical impact sits in the detail, and it is that detail which will shape how your business operates over the next 18 months and beyond. 

The changes are not arriving all at once. The first wave came into force in April 2026. Further reforms follow in October, with the most structurally significant changes landing in January 2027. Taken individually, each reform is manageable. Taken together, they alter the balance of risk for employers in a way that is particularly acute for small and medium-sized businesses, where formal HR infrastructure is often limited and management decisions are taken closer to the ground. 

Understanding what has already changed is important. Understanding where the real pressure points sit is more important still. 

What the April changes mean in practice 

Several reforms took effect on 6^th April 2026. For many SMEs, the challenge is not simply knowing that these changes exist, but recognising how they interact with day-to-day management decisions. 

Sick pay 

Statutory sick pay is now payable from the first day of absence. The three-day waiting period has been removed, and the Lower Earnings Limit no longer applies. In effect, every worker now qualifies for SSP from day one. 

On paper, that is a straightforward payroll adjustment. In practice, it removes something many smaller employers relied on without necessarily articulating it: a natural brake on very short-term absence. One-day and two-day absences now carry a direct cost from the outset, and that tends to change behaviour over time. 

Where absence has historically been managed informally, often by line managers making judgement calls on a case-by-case basis, this change exposes the limits of that approach. Patterns of absence are harder to challenge without clear records. Conversations become more difficult without a defined process. The businesses that will feel this most are not those with high absence rates, but those without a consistent way of dealing with it. 

If there is one immediate takeaway here, it is that absence management needs to be intentional. A clear policy, a routine return-to-work conversation and consistent manager behaviour will do more to control cost than any adjustment to payroll. 

Family leave 

Alongside SSP, there has been a quiet but significant shift in family leave rights. The qualifying periods for paternity leave and unpaid parental leave have been removed. Employees can request both from their first day of employment. 

For larger organisations, this is an adjustment to existing systems. For SMEs, it can catch people off guard. It is no longer safe to assume that new joiners will “build up” to these rights. They arrive with them. 

That has implications for contracts, handbooks and, more subtly, for how managers respond when requests arise early in someone’s employment. An uncertain or inconsistent response at that stage can create problems that surface later. 

The introduction of bereaved partner’s paternity leave, allowing up to 52 weeks’ leave where the mother or primary adopter dies, is unlikely to arise frequently. But if it does, it is the sort of situation where clarity and sensitivity matter in equal measure. Knowing the right exists, and how it operates, avoids having to work it out in the moment. 

Harassment and whistleblowing 

There has also been a strengthening of protections around workplace conduct. Whistleblowing protections now extend to those raising concerns about sexual harassment, and the duty on employers to prevent harassment has been sharpened. 

The emphasis here is on prevention rather than response. It is no longer enough to have a policy that sits in a handbook and is consulted when something goes wrong. Employers are expected to take active steps to reduce the risk of harassment occurring in the first place. 

For SMEs, where workplace culture is often shaped directly by owners and a small management team, this is less about formal training programmes and more about day-to-day behaviour. The tone set at the top of the business carries weight. Where that tone is unclear or inconsistent, the risk increases. 

This is an area where many businesses believe they are compliant because no issues have been raised. That is not the same as being protected. 

Record-keeping and redundancy 

Two further changes are less visible, but no less important. 

Employers are now required to keep adequate records to demonstrate compliance with holiday pay and entitlement rules. Where record-keeping has been informal or fragmented, that becomes a problem not when things are going well, but when a dispute arises. Without clear records, even a correct approach can be difficult to defend. 

At the same time, the maximum protective award for failing to consult collectively in redundancy situations has doubled to 180 days’ pay per employee. The underlying obligation has not changed, but the financial consequences of getting it wrong have. 

Most SMEs will not regularly find themselves making large-scale redundancies. But where they do, it is often in pressured circumstances. That is precisely when mistakes tend to happen, and when the increased penalty will be felt most sharply. 

How the risk profile shifts in October 

The April reforms are, for the most part, operational. They affect how you run your business day to day. The October 2026 changes are different. They do not alter routine processes as much as they extend the window in which decisions can be challenged. 

More time to bring claims 

Whilst there is no confirmed implementation date as yet for the extension of tribunal claim time limits from three to six months, when it does arrive, employees will have twice as long to bring most claims, including for unfair dismissal and discrimination.

For employers, this is not simply a longer timeline. It changes how long decisions remain “live”. Issues that might previously have fallen away can now resurface months later, often at a point where memories have faded and documentation is less complete than it should be. 

In practical terms, this places more weight on consistency and record-keeping. Decisions around performance, conduct and dismissal need to be documented clearly at the time they are made. Retrospective reconstruction is rarely convincing. 

Third-party harassment 

Employers will also be under a duty not to permit harassment of their employees by third parties, including customers and clients. 

For businesses where staff regularly interact with the public, this introduces a different kind of challenge. The source of the behaviour sits outside the organisation, but the responsibility to address it does not. 

Many SMEs pride themselves on strong client relationships. The difficulty arises when those relationships need to be balanced against the obligation to protect staff. Having a policy is one thing. Being prepared to act on it, even where it creates commercial discomfort, is another. 

Trade union notification 

From October, employers will be required to inform workers of their right to join a trade union, and trade unions will gain enhanced access rights. 

For most smaller businesses, this will not transform day-to-day operations. But it is not optional. The requirement needs to be reflected in employment documentation and onboarding processes. These are the kinds of changes that are easy to miss because they appear administrative, but they still carry compliance risk if overlooked. 

What changes will 2027 bring for employers 

While the 2026 reforms require adjustment, the changes arriving in January 2027 are more fundamental. They alter when risk arises and how quickly it escalates. 

Unfair dismissal 

From 1 January 2027, the qualifying period for unfair dismissal protection will reduce from two years to six months. At the same time, the statutory caps on compensation are being removed. 

For employers, that combination matters. Employees will gain protection much earlier, and the potential cost of getting a dismissal wrong increases significantly. 

The practical impact is easy to underestimate. Many SMEs are used to managing the first year or two of employment with a degree of flexibility, particularly where concerns about performance emerge gradually. That window is closing. 

There is also an immediate effect for those hiring now. Any employee who has six months’ service by January 2027 will gain protection at that point. The timeline is already in motion. 

This places real pressure on how early-stage performance is handled. Informal conversations, undocumented concerns and delayed decision-making become harder to defend. Managers need to identify issues earlier, address them clearly and record what has been done. That is often a cultural shift as much as a procedural one. 

Probationary periods are likely to come under closer scrutiny. A shorter, more actively managed probation, with clear review points and the option to extend, gives employers a better opportunity to make informed decisions before full protection applies. 

Fire and rehire 

From the same date, dismissing employees and rehiring them on less favourable terms will be automatically unfair in most circumstances. The scope for doing so will be extremely limited. 

For businesses considering changes to terms and conditions, this reinforces a point that is already good practice: changes need to be agreed, not imposed. Where agreement cannot be reached, the room for manoeuvre is shrinking. 

The key here is timing. If changes are being contemplated, those conversations need to happen well before January 2027, when the legal position becomes significantly more restrictive. 

Zero-hours and low-hours contracts 

New rights for zero-hours and low-hours workers will also come into force, including rights to reasonable notice of shifts, compensation for short-notice cancellations and access to guaranteed hours. 

The detail is still developing, but the direction is clear. Businesses that rely heavily on flexible staffing models will need to reconsider how that flexibility is delivered. 

For some, that will mean tighter workforce planning. For others, it may mean accepting a degree of increased cost in exchange for compliance. What is unlikely to work is assuming that current arrangements can continue unchanged. 

The Fair Work Agency 

Alongside these changes sits the creation of the Fair Work Agency, a new body tasked with enforcing employment rights. 

Its role is not simply symbolic. It signals a shift towards more active enforcement. For SMEs, this reinforces a broader point: compliance is not something that can be addressed reactively. The expectation is that businesses understand their obligations and act on them. 

Where to focus now 

Set out in full, the scale of reform can feel overwhelming. In practice, most businesses will find that a relatively small number of areas require immediate attention. 

The starting point is what has already changed. Ensure that sick pay is being applied correctly from day one. Check that contracts and policies reflect the removal of qualifying periods for family leave. Take a realistic look at how absence is managed in practice, not just on paper. Review how harassment risks are addressed day to day, particularly through management behaviour. 

Beyond that, the next pressure points are predictable. Documentation and consistency will matter more as tribunal time limits extend. Businesses where staff deal with customers or clients should think carefully about how they would handle a third-party harassment issue before one arises. 

Looking ahead to 2027, the focus shifts to how people are managed early in their employment. If performance concerns are not identified and addressed within the first few months, the opportunity to deal with them cleanly narrows. That is as much about manager capability as it is about policy. 

The businesses that will navigate these changes most effectively are not necessarily the largest or the most resourced. They are the ones that recognise where their vulnerabilities lie and address them early. For many SMEs, that means moving away from informal, reactive approaches and towards something more consistent and deliberate. 

If there is uncertainty about how these reforms apply in your business, it is worth having that conversation sooner rather than later. The cost of getting it wrong is increasing, and the time to adjust is now.