Employment Rights Act 2025: What UK SMEs Need to Know

The Employment Rights Act 2025 introduces over 30 changes to UK employment law, making it the largest single reform of UK employment law since the Employment Rights Act 1996. It affects an estimated 5.5 million employers across England, Wales, and Scotland, according to the Department for Business and Trade.

If you run a small or medium-sized business in the UK, here is what is changing, when each reform takes effect, and what your business must do to stay compliant.

Key Takeaways

• The ERA 2025 phases in from December 2025 to late 2027, affecting an estimated 5.5 million UK employers
• Unfair dismissal qualifying period drops from 2 years to 6 months on 1 January 2027, with no compensation cap
• Statutory Sick Pay (SSP) becomes payable from day one with no lower earnings limit from 6 April 2026
• Maximum collective redundancy protective award doubles to 180 days' pay from 6 April 2026
• Sexual harassment becomes a qualifying whistleblowing disclosure from 6 April 2026

What Is the Employment Rights Act 2025?

The Employment Rights Act 2025 (ERA 2025) received Royal Assent on 18 December 2025, delivering on the government's "Plan to Make Work Pay" manifesto commitment (Department for Business and Trade, 2025). It amends and extends multiple existing statutes including the Employment Rights Act 1996, the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992), and the Equality Act 2010.

According to the Department for Business and Trade, the Act affects an estimated 5.5 million UK employers and introduces over 30 distinct changes to employment law, phased in from December 2025 through to late 2027.

When Do the Employment Rights Act 2025 Changes Take Effect?

The government is implementing the ERA 2025 in stages. Over 30 reforms roll out between December 2025 and late 2027, according to the Department for Business and Trade. Here is every key date UK SMEs need in their diaries.

Already in Effect (December 2025 - February 2026)

Date	Change
18 December 2025	Repeal of the Strikes (Minimum Service Levels) Act 2023
18 February 2026	Repeal of most of the Trade Union Act 2016
18 February 2026	Removal of the 10-year ballot requirement for union political funds
18 February 2026	Simplification of industrial action ballot and notice requirements
18 February 2026	Extended dismissal protections for employees taking industrial action

What this means: If your HR policies or contracts still reference the Strikes (Minimum Service Levels) Act 2023 or the Trade Union Act 2016 requirements, they are now out of date. Update them immediately.

April 2026 - Less Than One Month Away

These changes take effect on 6 April 2026 and require immediate action:

1. Day-one right to paternity leave and parental leave (ERA 2025, s.11-12)

Previously, employees needed 26 weeks' continuous service to qualify for paternity leave and one year for parental leave. From 6 April 2026, both become day-one rights. Note: statutory paternity pay still requires 26 weeks' service. Only the leave entitlement is immediate.

2. Removal of the lower earnings limit and waiting period for Statutory Sick Pay (ERA 2025, s.8)

Currently, only employees earning above the lower earnings limit (LEL) of £125 per week (2025/26) receive Statutory Sick Pay (SSP), and only from the fourth day of sickness. From 6 April 2026, all employees qualify for SSP regardless of earnings, and it becomes payable from day one of sickness absence.

3. Doubling of the maximum collective redundancy protective award (ERA 2025, s.19)

The maximum protective award for failure to properly consult on collective redundancies doubles from 90 days' pay to 180 days' pay per affected employee. For a business making 20 employees redundant at the national average salary, this increases the maximum exposure from approximately £450,000 to £900,000.

4. Whistleblowing protections for sexual harassment disclosures (ERA 2025, s.17)

Sexual harassment is added as an explicit category of qualifying disclosure under the Public Interest Disclosure Act 1998 (as amended by ERA 1996, Part IVA). Employees who report sexual harassment are now protected whistleblowers. Update your whistleblowing policy to reflect this change.

5. Simplification of trade union recognition process (ERA 2025, s.24)

The statutory recognition process under Schedule A1 of TULRCA 1992 is simplified, making it easier for unions to achieve recognition in workplaces with 21 or more workers.

October 2026

Change	Section
"All reasonable steps" duty to prevent sexual harassment	ERA 2025, s.15
Employer liability for third-party harassment	ERA 2025, s.16
Extension of employment tribunal time limits from 3 to 6 months	ERA 2025, s.20
Duty to inform workers of their right to join a trade union	ERA 2025, s.25
Strengthened trade union rights of access to workplaces	ERA 2025, s.26
Fair Pay Agreement - Adult Social Care Negotiating Body	ERA 2025, Part 6

January 2027 - The Big Three

These are the changes with the greatest financial and operational impact for SMEs:

1. Unfair dismissal qualifying period reduced from 2 years to 6 months (ERA 2025, s.1)

This is the single most impactful change. Currently, employees need two years' continuous service to bring an unfair dismissal claim (except for automatically unfair reasons). From 1 January 2027, this drops to just six months, and it applies retrospectively to employees already in post. Every employee who has been with you for six months or more on 1 January 2027 will have immediate unfair dismissal protection.

2. Removal of the compensation cap for unfair dismissal (ERA 2025, s.2)

The compensatory award for unfair dismissal is currently capped at the lower of 52 weeks' pay or £115,115 (2025/26 rate). From January 2027, the ERA 2025 removes this cap entirely. A tribunal can award whatever it considers just and equitable, with no upper limit. For higher earners, this means potential six-figure awards.

3. Fire and rehire restrictions (ERA 2025, s.3)

Dismissing an employee in order to re-engage them on less favourable terms, commonly known as "fire and rehire", is restricted. Employers must demonstrate that they have exhausted all genuine alternatives before using this approach. The process must involve meaningful consultation.

2027 - Dates Still to Be Confirmed

Several measures are enacted but awaiting secondary legislation (Statutory Instruments) to set implementation dates:

• Guaranteed hours for zero-hour, low-hour, and agency workers
• Requirement to explain flexible working request refusals substantively
• Unpaid bereavement leave (including for miscarriage)
• Mandatory gender pay gap and menopause action plans (for larger employers)
• New collective consultation thresholds (aggregate, not per-site)
• Extended protections for pregnant workers
• Tighter regulation of umbrella companies

What Are the Biggest ERA 2025 Changes for SMEs?

The ERA 2025 contains over 30 reforms, but three stand out for their financial and operational impact on SMEs. According to the Ministry of Justice, unfair dismissal claims already account for over 40% of all employment tribunal cases (2024/25).

Area	Current Rule	After ERA 2025	Effective Date
Unfair dismissal qualifying period	2 years	6 months	1 January 2027
Unfair dismissal compensation cap	£115,115 or 52 weeks' pay	No cap	January 2027
SSP eligibility	Earnings above £125/week	All employees	6 April 2026
SSP waiting period	3 days	Day one	6 April 2026
Collective redundancy max award	90 days' pay	180 days' pay	6 April 2026
Paternity/parental leave	26 weeks / 1 year service	Day one	6 April 2026

1. The 6-Month Unfair Dismissal Rule

Under the current two-year qualifying period, many SMEs treat the first two years as an extended probation period. If an employee isn't performing after 18 months, ending the relationship is relatively straightforward. From January 2027, full unfair dismissal protection kicks in after just six months.

What does this actually mean in practice? You'll need robust performance management from day one, not month twelve.

What to do now:

• Audit your current workforce and identify anyone with performance or conduct concerns who has 6+ months' service
• Address outstanding issues while the current rules apply
• Redesign your probation process to align with the new 6-month window
• Implement proper performance management from day one of employment
• Train all managers on fair disciplinary procedures

2. Uncapped Compensation

The ERA 2025 removes the £115,115 compensation cap for unfair dismissal from January 2027. According to the Ministry of Justice, the median unfair dismissal award in 2024/25 was £13,541. Without a cap, outlier cases involving higher earners could result in significantly larger awards.

How confident are you that every dismissal in your business follows a documented, fair process?

What to do now:

• Review your employment practices liability insurance
• Ensure every dismissal follows a fair process with proper documentation
• Invest in manager training on dismissal procedures
• Consider taking legal advice before any dismissal of a high earner

3. Day-One SSP

The ERA 2025 removes the LEL and the three-day waiting period for SSP from 6 April 2026 (ERA 2025, s.8). The Chartered Institute of Payroll Professionals estimates this could increase SSP costs for SMEs by 15-25% depending on sector and absence rates.

Previously, part-time workers earning below £125 per week received no SSP at all. That changes in less than a month.

What to do now:

• Update your payroll system before 6 April 2026
• Revise your sickness absence policy to remove references to the waiting period and LEL
• Budget for increased SSP costs
• Review your occupational sick pay scheme to ensure it dovetails with the new SSP rules

What Should Your Business Do Right Now?

With 6 April 2026 less than a month away, UK SMEs face immediate compliance deadlines. The Department for Business and Trade estimates 5.5 million employers need to act. Here's a priority checklist.

Most businesses are focused on the January 2027 unfair dismissal changes, but the April 2026 SSP and paternity leave reforms arrive first and require payroll system updates that take time to implement.

1. Update your sickness absence policy and payroll - the SSP changes take effect on 6 April 2026
2. Update paternity leave and parental leave policies - day-one rights from 6 April 2026
3. Update your whistleblowing policy - add sexual harassment as a qualifying disclosure
4. Review redundancy consultation processes - the protective award has doubled
5. Remove references to repealed legislation - the Strikes Act and Trade Union Act changes are already in force
6. Start preparing for the 6-month unfair dismissal rule - review probation processes and performance management
7. Check your anti-harassment policy - the "all reasonable steps" duty arrives in October 2026
8. Monitor consultations - zero-hour contract reforms and bereavement leave dates are still TBC

Browse all 26 policy templates

We've found that updating your employee handbook is the most efficient first step. A single handbook review can address SSP, paternity leave, whistleblowing, and redundancy consultation changes in one pass, rather than updating each policy individually.

Frequently Asked Questions

Does the Employment Rights Act 2025 apply to all UK businesses?

Yes. The ERA 2025 applies to all employers in England, Wales, and Scotland regardless of size, affecting an estimated 5.5 million businesses (Department for Business and Trade, 2025). Some measures (such as gender pay gap action plans) may have employee count thresholds set by secondary legislation. However, the core changes, including the 6-month unfair dismissal rule and SSP reforms, apply universally.

When does the 6-month unfair dismissal rule start?

The unfair dismissal qualifying period reduces from two years to six months on 1 January 2027 (ERA 2025, s.1). It applies retrospectively, meaning employees already in post with six or more months' service on that date will have immediate protection.

Do I need to update my contracts as well as my policies?

Yes. Several ERA 2025 changes affect contractual terms, not just HR policies. The probationary period clause, sick pay clause, paternity leave clause, and parental leave clause all need updating. Contracts issued after the relevant implementation date should reflect the new legal position.

What happens if I don't comply?

Non-compliance carries financial and legal risk. For example, failing to follow a fair dismissal process could result in an uncapped compensatory award at tribunal. Failing to properly consult on collective redundancies could cost up to 180 days' pay per employee. The new Fair Work Agency will also have enforcement powers from April 2026.

Are zero-hour contracts being banned?

No. Zero-hour contracts are not banned by the ERA 2025. However, workers on zero-hour and low-hour contracts will gain a right to be offered guaranteed hours based on their actual working pattern. The implementation date and detailed regulations are expected in 2027, subject to consultation.

Where can I find the full text of the Act?

The Employment Rights Act 2025 is published on legislation.gov.uk as Employment Rights Act 2025 (c.36). The full text includes all 36 sections and 6 Parts. You can navigate by Part or section number using the table of contents on the left-hand side. Explanatory Notes are also available alongside the Act, providing plain-English summaries of each section's purpose and effect. These notes are particularly useful for understanding how the ERA 2025 amends existing legislation such as the Employment Rights Act 1996 and TULRCA 1992. For the most up-to-date version reflecting commencement dates, check the "Status" tab on each section page.