The UK government’s workers’ rights reforms, introduced through the revised Employment Rights Act, have now become law – but in a notably scaled-back form after extensive parliamentary negotiation.
While the changes still represent one of the most significant updates to employment law in years, recent compromises have reduced the immediate financial impact on businesses compared with earlier proposals.
Here’s what it means for small business owners.
What has changed (and what was scaled back)?
A major talking point throughout the legislative process was the proposal to give employees unfair dismissal protection from day one of employment. After pushback from business groups, this was replaced with a six-month qualifying period – a compromise designed to ease pressure on employers, particularly around probation and staff turnover.
Other headline reforms set to go ahead include:
- day-one statutory sick pay (SSP) – workers will be eligible from their first day of illness, and the lower earnings threshold will be removed
- day-one parental and paternity leave rights – removing existing length-of-service requirements for eligibility
- stronger protections for industrial action – including extending unfair dismissal protections for striking workers beyond the current ‘minimum service levels’ (which has already been removed)
- establishment of a Fair Work Agency to oversee rights like holiday and sick pay
Further changes will continue to roll out through 2026 and 2027, including rules that make “fire and rehire” practices automatically unfair, new liabilities for employer responsibilities around workplace harassment, and longer employment tribunal time limits.
Employers must also prepare for mandatory consultation on tipping policies and evolving requirements on shift cancellations and flexible working responses.
What it means for small businesses
The government estimates the net cost of the reforms at around £1 billion for UK businesses – significantly lower than earlier projections of £5 billion – but business bodies warn that this may understate the real cost, due to administrative and compliance time.
For small business owners, this means two key priorities:
- Review HR policies and contracts now to make sure you’re complying with upcoming day-one rights and procedural changes.
- Plan for additional payroll costs and administrative burden associated with expanded sick pay, parental rights, and potential tribunal claims.
In conclusion, while the final version of the bill is less disruptive than first imagined, it still marks a significant shift in employment law. The phased rollout of the Employment Rights Act gives businesses some breathing room – but early preparation will help reduce disruption and unexpected costs as the changes take effect.
More guides for employers
- How to write a staff handbook: a guide for small businesses
- What is an Employer Reference Number (ERN)?
- Employer National Insurance: rates and thresholds for small businesses
- What does employers’ liability insurance cover?
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