A clear guide to the key reforms, risks and practical steps employers should prioritise ahead of the 2026–2027 changes.
The Employment Rights Act 2025 (ERA) represents the most significant employment law reform in decades. For employers these changes arrive against a backdrop of ongoing workforce pressure, financial constraint and increasing administrative demand.
The key reforms began taking effect from April 2026, with further changes in October 2026, January 2027 and during 2027. Many of the changes increase cost, reduce flexibility and raise legal risk for unprepared employers.
This is not simply a matter of technical compliance. The impact of the ERA will be felt in workforce planning, staffing decisions and day‑to‑day management long before any issue reaches a tribunal.
Against an already heavy workload for managers and HR teams, the ERA raises expectations around policies, procedures, training and record keeping. This article cuts through the noise, focusing on the reforms that matter most, their practical impact, and the steps employers should prioritise now.
We are already advising clients on navigating these changes through training, updated policies, contracts of employment, and audits of existing documentation and systems.
1. Day‑one Statutory Sick Pay and Family Leave Rights – cost and coverage pressure
As of 6 April 2026, SSP has been payable from day one of sickness absence, which means the previous requirement of three waiting days to qualify for payment has been removed. At the same time the lower earnings limit (previously £123 a week) has been removed, meaning that SSP is payable to all eligible employees regardless of earnings.
In practice, this means more employees are qualifying for SSP and employers may see an increase in short-term sickness absence.
Added to this, on the same date employees gained rights to take paternity leave and unpaid parental leave from day one of employment, removing previous qualifying service requirements and increasing the likelihood of early and short notice absences.
Smaller employers, and larger organisations operating with small or specialist teams, are particularly exposed, where resilience is limited and absence is felt immediately. Day one sickness and family leave rights make workforce planning more difficult, particularly in the early months of employment.
The absence of even one team member can have a disproportionate impact, creating rota gaps, placing additional pressure on already stretched colleagues and leading to service disruption and increased client or customer dissatisfaction.
Action to take: Sickness absence and family leave will need to be managed proactively with effective return to work discussions, attention to staff well-being and monitoring of patterns and triggers for absence. Policies and payroll processes should be reviewed and updated to reflect the new SSP rules and family leave rights. Employers may also wish to consider how enhanced contractual sick pay interacts with the expanded statutory entitlement and how cover arrangements or rotas are planned where leave may arise earlier and with less notice than previously.
2. The Fair Work Agency – from complaints to enforcement
The introduction of the Fair Work Agency (FWA) marks a shift away from complaint‑led enforcement towards more active scrutiny of employer practices, particularly around pay compliance.
From 7 April 2026, the FWA was established as a central enforcement body for key employment rights. For many employers, its relevance lies in the enforcement of national minimum wage, statutory sick pay and holiday pay, and in the introduction of new record‑keeping obligations.
For the first time, the state will be responsible for enforcing holiday pay compliance. Employers are now required to keep adequate records of holiday entitlement and how holiday pay has been calculated, and to retain those records for up to six years. A failure to do so can amount to a criminal offence, and those records may be inspected by the FWA as part of an investigation. Holiday pay remains an area where errors commonly arise. Employers will need to be able to show not only how much holiday has been taken, but how holiday pay has been calculated, including whether it properly reflects normal pay where required.
Alongside this, the FWA will enforce ongoing national minimum wage compliance obligations, with particular risk around unpaid or incorrectly paid overtime, additional hours and work outside normal working patterns.
Where underpayment is identified, the FWA will have the power to require arrears to be repaid alongside significant financial penalties, and enforcement action may be taken without any complaint being raised by staff. The Government already publishes a public “naming and shaming” list for minimum wage breaches, which includes employers across a range of sectors.
Action to take: Employers should review how holiday entitlement, holiday pay and working time are recorded and calculated, ensuring records are accurate, consistent and capable of being retained for six years. Alignment between working arrangements, payroll and contracts of employment will be critical in demonstrating compliance if the FWA intervenes. We regularly advise on common errors employers make with holiday pay.
3. Third‑party harassment – customer behaviour as a legal issue
As of October 2026, employers will become liable for harassment by third parties, including customers, clients, contractors and end users of services provided, and will be under a duty to take “all reasonable steps” to prevent it.
This represents a shift in how employers must approach the issue. For instance, abuse of reception and administrative staff has long been recognised as unacceptable but from October 2026 it is also explicitly framed as a legal compliance issue, requiring evidence of proactive steps by employers.
The expectation is that employers can demonstrate a considered and proactive approach to managing risk. Employees working in customer or client‑facing roles are particularly exposed, making prevention, training and clear reporting routes especially important.
Action to take: Compliance with the new third‑party harassment duty requires proactive risk assessment, particularly in relation to customer or client contact. Employers should consider risks arising in reception areas, public-facing workplaces, meeting areas, and off site activity. Employers should ensure clear standards of acceptable behaviour are reflected in policies and customer-facing communications, and provide staff with training de‑escalation and reporting. Consistent handling of incidents and documentation will be important in demonstrating that reasonable steps have been taken.
4. Preventing sexual harassment – from policy to proof
From October 2026, duties around preventing sexual harassment will also strengthen. Employers will move from a requirement to take reasonable steps to an obligation to take all reasonable steps, with an increased expectation of active prevention rather than passive compliance.
While the full scope of what “all reasonable steps” will require is still developing, regulators and tribunals are clear that having a policy on paper will not be enough. Instead, employers will be expected to show ongoing action, including regular training, clear zero‑tolerance messaging, effective reporting mechanisms and evidence that concerns are addressed appropriately.
As of 6 April 2026, sexual harassment complaints also began potentially qualifying as protected whistle-blowing disclosures, increasing both litigation and reputational risk where complaints are mishandled or poorly documented.
Action to take: Practical steps can be taken now, even though the scope of the new duty is still developing. From October 2026, employers will be required to take all reasonable steps to prevent sexual harassment, but what this means in practice is likely to evolve as guidance and case law develop into 2027. In the meantime, existing ACAS and Equality and Human Rights Commission guidance offer a useful benchmark for expected standards.
Key priorities include up‑to‑date policies, regular and meaningful training, and clear routes for raising concerns. In practice, employers benefit from ensuring these measures operate together, rather than as standalone documents, ahead of clearer regulatory expectations emerging.
5. Extended tribunal time limits – why documentation matters more than ever
From October 2026, Employment Tribunal time limits will extend from three months to six months. For employers, this represents a further escalation in risk, as employment decisions will remain open to challenge for significantly longer, particularly where informal conversations, performance concerns or customer‑related issues are not properly recorded at the time.
In practical terms, decisions stay “live” for twice as long. Issues that may once have faded quickly can resurface months later, at a point where recollections are less clear and key individuals may have moved on. Poor or inconsistent documentation is therefore more likely to undermine an otherwise reasonable decision.
This change reinforces the importance of treating everyday employment decisions, particularly around performance, conduct, grievances, and complaints, as matters that may later be scrutinised. For employers often the risk is not unfairness, but informality and the absence of a clear paper trail.
Action to take: Employers should prioritise clear, contemporaneous documentation to support employment decisions and demonstrate the rationale behind them. Decisions should be capable of standing up to scrutiny months later, based on the written records alone.
Where concerns are raised by employees, clients or customers, early investigation and fact‑finding, including taking statements where appropriate, will be increasingly important. Addressing issues promptly and methodically can reduce escalation risk and place employers in a stronger position if matters are revisited at a later stage.
6. Unfair dismissal after six months – probation becomes critical
Employers have become used to employees qualifying for unfair dismissal rights only after around two years’ service, meaning that early exits have historically carried relatively low legal risk. That landscape is already changing.
From 1 January 2027, the qualifying period for unfair dismissal reduces from two years to six months. Any employee with at least six months’ service by that date will qualify for protection. Early dismissals and fixed‑term non‑renewals (which count as dismissals in employment law) will therefore carry much greater risk, making probation management essential.
Employers will need to be more careful about recruitment and increasingly focused on getting the right appointment from the outset. Clear, measurable selection criteria will be important, alongside careful interrogation of experience, suitability for the role and whether the individual will genuinely be a good fit for the organisation.
To dismiss fairly, a statutory fair reason is still required, for example, misconduct, redundancy, or poor performance, alongside a related fair procedure. This places greater emphasis on how staff are managed in the early stages of employment, including during probation, rather than relying on an informal approach.
In response, many employers are already reducing probationary periods from six months to, for example, three months, which can provide greater flexibility where probation needs to be extended, or an employee has a period of sickness absence.
Action to take: Update offer letters, contracts of employment and policies to ensure probationary periods are appropriate and clearly set out. Make recruitment decisions carefully and avoid “taking a punt”. Actively manage probationary periods and address performance issues early, rather than allowing problems to drift.
7. Uncapped compensation – what this means for businesses
Building on the reduced qualifying period, the removal of the compensation cap represents a further substantial increase of risk for businesses.
In the short term, the compensatory award for unfair dismissal remains capped at the lower of a year’s salary or the statutory maximum, which is currently £123,543. However, from 1 January 2027, the financial cap on the compensatory award for unfair dismissal will be abolished for dismissals taking place on or after that date. This creates the potential for uncapped financial exposure.
Where compensation is no longer limited, awards may be substantial, especially in cases involving higher‑earning staff or where it may take an individual a long time to secure alternative employment. This may be due to health reasons, the scarcity of comparable roles, or wider labour market factors.
Taken together, earlier access to unfair dismissal rights and the removal of the compensation cap mean that the financial consequences of getting a dismissal wrong are materially higher. This further reinforces the importance of robust processes, careful decision-making and clear documentation at every stage of the employment relationship.
Action to take: Dismissals should be approached carefully and fairly, particularly in light of the reduced six‑month qualifying period. Early legal advice can help assess risk and options, and in some cases employers may wish to consider whether a commercial settlement represents a sensible and proportionate resolution, rather than allowing disputes to escalate.
8. Fire and rehire restrictions – only in cases of genuine financial distress
From 1 January 2027, significant restrictions will apply to the use of “fire and rehire”. This is the practice of dismissing employees on their existing contractual terms and offering re‑engagement on new terms. While agreement has always been the preferred approach to contractual change, the proposed reforms will place much tighter limits on when dismissal can be used to impose changes.
Under the new regime, dismissals will be automatically unfair where an employee is dismissed either because they refuse to agree to a contractual change, or because the employer wishes to employ someone else on the varied terms but for substantially the same role. This will apply changes to pay, hours, holidays, pensions, shift patterns or time off rights and other key terms to be set out in regulations.
There is expected to be a narrow exception in cases of genuine financial distress, where an employer can show that dismissal was necessary to avoid business failure and that no reasonable alternative was available.
Alongside these statutory changes, a new, strengthened Code of Practice on dismissal and re‑engagement is expected to replace the current version. The existing Code already expects meaningful consultation and consideration of alternatives. Unreasonably failing to comply with the Code allows tribunals to increase awards by up to 25%.
More broadly, the direction of travel is clear: employers will not be able to rely on contractual drafting alone to deliver change. Even where contracts include variation clauses, the focus is likely to be on process, fairness and genuine engagement. There also remains some uncertainty as to how the new regime will operate in practice, and whether the restrictions will be applied as tightly as currently proposed.
Action to take: Where contractual change is being considered, employers should focus on early engagement and genuine consultation with staff, exploring alternatives before dismissal is contemplated. Employers should not assume that existing contractual provisions will be sufficient to implement change. Ahead of the new regime coming into force, there may be merit in reviewing potential changes proactively, rather than leaving them until options become more constrained.
9. Zero and low‑hours working – reduced flexibility, more process
Changes taking effect during 2027 under the Employment Rights Act 2025 will affect the use of zero‑hours and low‑hours staff.
Employers will be required to offer qualifying workers a contract that reflects the hours they regularly work in practice, alongside rights to reasonable notice of shifts and compensation for short‑notice change or cancellation. Where staff work across multiple sites, or under different contractual arrangements within the business or organisation, these new rights may increase administrative complexity and reduce informal flexibility. Employers may therefore need to review whether current workforce arrangements align with the new statutory framework as these reforms come into force.
The detail of how these rights will operate in practice is still being developed. A consultation launched on 2 June 2026 is considering key aspects of the new regime, including qualifying thresholds, reference periods, how guaranteed hours will be calculated, and potential exceptions to the new regime. The government has indicated that it does not intend to ban zero hours contracts entirely, but to reduce one-sided flexibility while preserving operational flexibility for employers.
Action to take: Review the use of zero and low hours arrangements, particularly where staff work regularly across multiple sites. Consider whether roles, hours or deployment arrangements need to be clarified or adjusted so that contractual terms reflect actual working patterns under the new regime and whether roles can be restructured to reduce administrative burden.
10. Flexible working – Stronger Rights
Flexible working rights will continue to strengthen for employees with changes taking effect in 2027. While employers will still be able to rely on one of the existing eight statutory grounds for refusing a request, such as the impact on customer or client demand, service quality, or the inability to reorganise work amongst existing staff, refusals will be subject to greater scrutiny.
Employers will be required not only to identify the statutory ground relied upon, but also to explain why they consider that ground to be reasonable in the circumstances. This is likely to make refusals harder, particularly in environments where staffing is already stretched.
The Government has been consulting on introducing a light‑touch process for handling flexible working requests where they are not accepted, which may include a meeting, consultation and a written outcome. While these are already advisable steps for an employer to take, they reinforce the expectation of a clear, consistent and well‑evidenced approach.
The likely increased risk for businesses lies in how flexible working requests are handled. Similar requests treated differently, or refusals that cannot be clearly explained and evidenced, are more likely to attract challenge.
Action to take: Review and update flexible working policies and processes. Ensure those responsible for handling requests understand the statutory grounds for refusal, can articulate why a refusal is reasonable, and apply a consistent approach across the business or organisation. Where relevant consider how flexible working requests will impact the business as whole and whether a more co-ordinated or holistic approach is needed to be taken in certain circumstances.
11. Trade union reforms – awareness and practical updates
Reforms taking effect during 2026 and 2027 will strengthen trade union rights, including easier recognition, expanded union access rights, and a new duty on employers to inform workers of their right to join a trade union.
For most employers, the initial practical impact is likely to be administrative rather than operational, focused on ensuring employment documentation and onboarding materials are up to date rather than managing day‑to‑day collective relations.
Since April 2026, statutory union recognition has become easier to secure due to reduced thresholds and requirements. From October 2026, trade unions will also gain broader rights to access workplaces, including digitally, for recruitment and organising purposes. Employers will be expected to manage access requests appropriately and must not unreasonably refuse them. In addition, a new duty to inform workers of their right to join a trade union will take effect.
Action to take: Review onboarding and employment documentation to ensure readiness to meet the new duty to inform, once statutory and Government requirements are fully settled. Ensure managers understand how to respond appropriately if trade union contact arises and, more generally, that staff have clear and consistent routes for raising concerns.
Managing risk – and finding opportunity
There is no avoiding the fact that the Employment Rights Act 2025 increases cost, complexity and legal exposure for employers. However, it also creates a clear opportunity for employers who prepare early, rather than responding reactively as claims, inspections or workforce issues arise.
Clearer policies, better documentation, structured probation processes and consistent decision‑making all help to reduce risk and improve fairness.
Employers that engage with these changes early are generally better placed to retain staff, manage risk proportionately and avoid later disruption. Significant changes for employers under the Employment Rights Act are coming whether employers feel ready or not. The real question is whether its impact is managed through planning and preparation, or felt later through disputes, enforcement action and avoidable strain.
How Stephens Scown can help
We are supporting employers in preparing for the Employment Rights Act in a practical and proportionate way, including:
- In‑depth reviews of contracts, policies and working practices
- HRExpress, our annual employment law and HR support service, including ERA‑focused contract and handbook reviews
- Updated policy and procedure packages
- Training for managers and staff, particularly around harassment and sexual harassment, considering the strengthened duties
Our aim is to help employers feel prepared, confident and supported, rather than overwhelmed by the scale of change.