The Employment Rights Act 2025 is the biggest shake-up of UK employment law in a generation, and it’s arriving in stages. Two more changes land this month, with the big one following in January 2027.

You might be wondering why your accountant is writing about employment law. It’s simple. Every one of these changes has a price tag, whether that’s higher sick pay costs, bigger tribunal risks or more time spent on admin. If you employ people, it belongs in your budget, and that’s where we come in.

Here’s what’s already changed, what’s coming in October 2026 and what’s on the horizon, with the money side of each explained in plain English.

What’s already changed in 2026

The first wave arrived in April 2026. If your payroll hasn’t been updated to reflect it, now’s the time to check.

Statutory Sick Pay from day one

Since 6 April 2026, Statutory Sick Pay is paid from the first day of sickness. The old three unpaid “waiting days” have gone, and so has the lower earnings limit, so lower-paid and part-time staff now qualify too.

SSP is £123.25 a week or 80% of normal weekly earnings, whichever is lower. For someone working five days a week, that’s roughly £24.65 a day. A three-day bout of flu used to cost you nothing in SSP. It now costs around £74 per person, every time. Across a winter of colds in a team of ten, that adds up quickly.

Day-one paternity and parental leave

Paternity leave and unpaid parental leave became day-one rights in April 2026. A new starter can now take paternity leave straight away, so it’s worth factoring statutory pay and cover costs into your plans for any new hire.

Holiday pay records kept for six years

You must now keep records of annual leave and holiday pay for at least six years. If your records are scattered across spreadsheets and paper diaries, a proper bookkeeping and payroll system makes this far easier to prove.

A new enforcer in town

The Fair Work Agency launched on 7 April 2026. It can investigate unpaid holiday pay and SSP, so getting these wrong now carries a bigger risk of back payments and penalties.

Bigger awards for collective redundancy

The maximum protective award for failing to consult properly on collective redundancies doubled from 90 to 180 days’ pay. This only applies when you’re proposing 20 or more redundancies, so most small businesses won’t be affected, but it shows the direction of travel. Penalties are going up.

What’s changing in October 2026

October brings two key changes for employers of every size, with a third for hospitality close behind.

1 October, longer to bring a tribunal claim

From 1 October 2026, employees have six months instead of three to bring most employment tribunal claims. That doubles the window in which a dispute can turn into a legal bill.

The financial impact here is a longer tail of risk. A disagreement you thought had blown over could resurface half a year later. Keeping clear records of pay, hours, holiday and any conversations about performance is your best protection, and it’s much cheaper than defending a claim without them.

30 October, a tougher duty to prevent sexual harassment

From 30 October 2026, employers must take “all reasonable steps” to prevent sexual harassment at work. Previously the test was “reasonable steps”, so the bar is going up. You’ll also be liable for harassment of your staff by third parties, such as customers, clients or suppliers, unless you’ve taken all reasonable steps to stop it.

This matters financially because discrimination compensation has no upper limit. Practical prevention costs money too, so budget for:

  • updating your policies and staff handbook
  • training for managers and staff
  • time spent carrying out and recording risk assessments

If your team deals with the public, as in hospitality, retail or healthcare, third-party harassment is a real risk to plan for. Acas has practical guidance on what prevention looks like.

30 October, trade union access rights

New rules on trade union access to workplaces also start on 30 October. For most small businesses without a recognised union, there’s little immediate cost, but it’s worth knowing they’re there.

December 2026, new rules on tips

The government’s latest timeline shows strengthened tipping law arriving in December 2026. Employers will need to consult staff on their tipping policy, share the feedback and review the policy at least every three years. If you run a pub, café or restaurant, check how tips flow through your payroll, as the way they’re paid out affects National Insurance.

What’s on the horizon for 2027

The biggest financial change is still to come. From 1 January 2027, the rules on unfair dismissal shift significantly.

Unfair dismissal protection after six months

Right now, most employees need two years’ service before they can claim unfair dismissal. From 1 January 2027, that drops to six months. The cap on the compensatory award is also being removed, so there’ll be no ceiling on what a tribunal can award.

For a small business, that changes the maths on every hire. Use the first six months well, with clear probation reviews and written records. A good recruitment decision has always saved money. From 2027, it protects you from a potentially unlimited bill too.

Fire and rehire restricted

Also from January 2027, dismissing staff and rehiring them on worse terms will be automatically unfair in most cases. If you’ve ever relied on changing contracts to cut costs in a tough year, you’ll need a different plan, so it’s worth building a bigger cash buffer now.

Later in 2027

The government expects these to follow during 2027, although dates aren’t fixed yet:

Zero-hours and low-hours contracts

Workers will have the right to be offered guaranteed hours, reasonable notice of shifts and payment when shifts are cancelled at short notice. For seasonal and shift-based businesses, this is the change most likely to affect your wage bill.

Flexible working

You’ll only be able to refuse a request if it’s reasonable to do so, for one of the set business reasons.

Bereavement leave

A new right to unpaid bereavement leave, including for pregnancy loss.

Stronger protection for pregnant women and new mothers against dismissal.

Key dates at a glance

Date Change What it means for your finances
6 April 2026 SSP from day one, no lower earnings limit Higher sick pay costs, especially for short absences
6 April 2026 Day-one paternity and parental leave Budget for statutory pay and cover from the first day
6 April 2026 Six-year holiday pay records More admin, and back pay risk if records are missing
7 April 2026 Fair Work Agency launched Greater chance of enforcement on holiday pay and SSP
1 October 2026 Tribunal claim limit rises to six months A longer period of legal risk after any dispute
30 October 2026 “All reasonable steps” to prevent sexual harassment, including by third parties Training and policy costs, and uncapped compensation if you fall short
December 2026 Strengthened tipping law Consultation and review costs for hospitality
1 January 2027 Unfair dismissal after six months, compensation cap removed Bigger tribunal risk, and more value in a good probation process
January 2027 Fire and rehire restricted Less flexibility to cut costs through contract changes
2027, date to be confirmed Zero-hours rights, flexible working, bereavement leave Possible increase in wage bills for shift-based teams

All future dates are subject to change as the regulations go through Parliament.

How to prepare your business finances

None of this needs to be overwhelming. A few practical steps now will save you money and stress later.

  1. Check your payroll is up to date. Make sure SSP is being paid from day one and that lower-paid staff are included. If you’re not sure, our payroll team can review it for you.
  2. Build the extra costs into your budget. Higher sick pay, training and any extra cover all need a line in your forecast for the year ahead.
  3. Get your records in order. Holiday, pay, hours and sickness records now need to last six years, and they’re your first line of defence in any claim.
  4. Review your contracts and probation process before January 2027, so the first six months of every new hire are well managed.
  5. Look at your cash buffer. With less room to cut costs through contract changes, a healthy reserve gives you options if trading gets tough.
  6. Think about insurance. Employment practices liability cover is worth a conversation with your broker now that some awards will be uncapped.

If you’re thinking about taking on your first employee, our guide to payroll for small businesses covers the basics, and our new business set-up service can help you get things right from the start.

Talk to someone who knows your business

We’ve helped local businesses through 80 years of changing rules, and this is another one we can help you plan for. Our team can look at what the Employment Rights Act means for your costs, update your payroll and build the changes into your forecasts, so there are no surprises.

For the HR and legal side, such as rewriting policies or handling a dispute, we’d always recommend speaking to an employment specialist or Acas.

Get in touch with the team to book a no-obligation chat.

Useful links