Employment rights bill and how it affects small and medium employers

The Employment Rights Bill has now moved into its consultation phase, and Summer–Autumn 2025 brings some of the most significant proposals in years. While these reforms are designed to protect workers, they will also reshape the way SMEs manage staff, contracts, and workplace practices.

Below is a breakdown of each consultation area for Summer–Autumn 2025 and the additional topics already lined up for Winter 2025/Early 2026.

Fair Pay Agreement – Adult Social Care

The Government is proposing a legally binding, sector-wide pay and conditions agreement for adult social care workers. This would set consistent minimum pay and standards across all providers, tackling the problem of low wages and high staff turnover. It would bring the sector closer to a national collective agreement model, similar to those used overseas.

Day-One Right to Claim Unfair Dismissal – Statutory Probation Period

A major shift in employment law is being considered: giving employees unfair dismissal protection from their very first day of employment. This would be paired with a statutory probationary period – likely around nine months – during which dismissal processes would be simpler but still require fair management and documentation.

Bereavement Leave

The Government is looking at creating a statutory entitlement to bereavement leave that goes beyond the current parental bereavement provisions. This would apply to the loss of a close family member or dependent and aims to give all workers the same right to take time away from work at a time of grief.

“Fire and Rehire” Practices

The use of “fire and rehire” – dismissing employees and re-engaging them on new terms – is under review. The consultation will examine whether stronger safeguards are needed to prevent the misuse of this practice, ensuring it is only used after thorough consultation and as a last resort.

Regulation of Umbrella Companies

Umbrella companies, often used to employ agency and contract workers, are being scrutinised due to concerns about hidden deductions, lack of pay transparency, and non-compliance with tax rules. The consultation will consider stricter regulation to improve transparency and protect workers in these arrangements.

Rights for Pregnant Workers

The Government is considering strengthening protections for pregnant workers. This could mean extending redundancy protection, enhancing flexible working rights during pregnancy, and reinforcing health and safety requirements to ensure safe working conditions.

Zero Hours Contracts

The consultation on zero hours contracts will look at whether to restrict or even ban these arrangements, replacing them with contracts that guarantee minimum hours. The focus is on reducing income instability for workers while still allowing flexibility where appropriate.

New Trade Union Package

A broad package of trade union reforms is on the table. This includes repealing the Strikes (Minimum Service Levels) Act 2023, repealing most of the Trade Union Act 2016, removing the 10-year ballot requirement for political funds, simplifying the process for giving industrial action notices, and strengthening protections against dismissal for workers involved in industrial action.

Winter 2025/Early 2026 Consultations

Collective Redundancy Consultation Threshold

The Government is looking at reducing the number of employees that trigger the need for a formal collective redundancy process. This means that smaller businesses, which previously fell below the threshold, could now be legally required to conduct structured consultation with staff and, in some cases, their representatives before making redundancies.

Flexible Working

The Government is considering going further than the recent changes to flexible working laws, which already made it a day-one right to request. Future proposals may place tighter limits on the reasons an employer can refuse a request, making it harder to turn down arrangements such as remote or hybrid working, compressed hours, or job-sharing. Timescales for responding could also be shortened, meaning SMEs will have less time to review the impact on business operations before giving a decision.

Tightening Rules on Tipping

The Government wants to ensure that all tips, gratuities, and service charges are passed on to workers in full, without any unfair deductions or delays. This will be particularly important for hospitality and service-sector SMEs where tips form a significant part of staff income.

Trade Union Protections and Blacklisting

New measures are being explored to strengthen protections for employees involved in trade union activities, especially where industrial action is concerned. This could include making it harder for employers to take disciplinary action or treat employees detrimentally because they have participated in lawful strikes or other union activities. The Government is also looking at tackling blacklisting – the practice of denying work opportunities to individuals due to their trade union membership or involvement.

Employment Rights Bill – April 2026 Changes: What They Mean for SMEs

April 2026 will mark the introduction of several important measures under the Employment Rights Bill. These reforms will expand statutory rights, strengthen enforcement powers, and remove some long-standing qualifying conditions. While each change is intended to improve worker protections, SMEs will face practical and financial challenges if they do not prepare well in advance.

Day-One Rights to Paternity Leave and Unpaid Parental Leave

Currently, employees must complete a minimum qualifying period before they can take paternity leave or unpaid parental leave. From April 2026, this qualifying period will be removed. The change will give fathers, partners, and same-sex partners the right to paternity leave from their first day of employment following the birth or adoption of a child. In addition, unpaid parental leave — intended to give parents time away from work to care for their child — will also become available immediately upon starting a job.

Impact on SMEs

This change will mean that brand-new employees may request time off almost immediately after joining, which could place pressure on small teams where absence cover is already challenging. For example, if a new recruit in a five-person team takes two weeks’ paternity leave during their probationary period, the impact on service delivery could be significant.

Preparation Steps

SMEs should update contracts, handbooks, and absence management procedures so that these entitlements are accurately reflected. It is also important to review staffing and contingency plans, particularly in roles that are business-critical, so leave can be accommodated without serious disruption.

Doubling of the Maximum Protective Award in Collective Redundancy Cases

A “protective award” is compensation ordered by an Employment Tribunal when an employer fails to meet their legal consultation obligations during collective redundancies. From April 2026, the maximum protective award will double. This significantly increases the potential financial exposure for businesses that do not follow the process correctly.

Impact on SMEs

Many SMEs rarely face large-scale redundancies, but the threshold for triggering collective consultation can be lower than expected — and proposed changes to the redundancy consultation threshold in future reforms mean smaller businesses could be caught more often. Failing to meet the correct process could now result in awards that are double the current maximum, even if the redundancies themselves were otherwise justified.

Preparation Steps

SMEs should ensure anyone involved in restructuring or redundancy processes is trained on the legal requirements for consultation. This includes providing information in writing, holding genuine consultation meetings, and notifying the relevant government department within the required timescales. It is worth preparing template documents and checklists in advance so that, if redundancies are required, the process can be followed without delay.

Launch of the Fair Work Agency

The Fair Work Agency will be a new statutory body with powers to monitor workplace rights, investigate complaints, and enforce compliance with employment law. It will have authority to conduct inspections, request records, and issue penalties for non-compliance.

Impact on SMEs

While larger employers may already have compliance teams in place, SMEs will need to ensure they can demonstrate that policies, contracts, and practices meet all legal requirements. The Fair Work Agency will be able to take action on both new and existing rights, meaning businesses will need to be prepared to respond quickly to any requests for evidence.

Preparation Steps

SMEs should carry out a full HR compliance audit before April 2026. All employment documentation — including contracts, policies, payroll records, and training logs — should be reviewed, updated, and stored so it can be accessed easily.

Voluntary Gender Pay Gap and Menopause Action Plans

Employers will be encouraged, but not legally required, to publish action plans addressing gender pay gaps and menopause support. These plans could include steps to address pay disparities and measures to support staff experiencing menopause-related health issues. While voluntary at first, the government has suggested that these could become mandatory in the future.

Impact on SMEs

For smaller businesses, early adoption is an opportunity to show commitment to equality and inclusion. Demonstrating good practice could also improve recruitment and retention, particularly in sectors where skilled staff are in short supply.

Preparation Steps

Consider analysing pay data to identify any gender-based disparities and creating a menopause policy outlining the support available. Even informal steps — such as appointing a point of contact or offering flexible working arrangements — can help build trust and engagement among staff.

Removal of the Lower Earnings Limit and Waiting Period for Statutory Sick Pay (SSP)

At present, employees must earn above a set threshold and wait three days before qualifying for SSP. From April 2026, both the lower earnings limit and the waiting period will be removed. All employees, regardless of earnings, will qualify for SSP from their first day of sickness absence.

Impact on SMEs

This reform will inevitably increase costs for SMEs, especially in industries with high short-term absence rates. Businesses will no longer be able to avoid SSP payments for short illnesses or for employees who work only a few hours a week.

Preparation Steps

Update sickness absence policies to reflect the change and ensure payroll systems can process SSP from day one. More importantly, review absence management processes to identify patterns early and take action before they impact productivity and costs.

Simplified Trade Union Recognition Process

The process for recognising a trade union for collective bargaining will be streamlined. This means unions will be able to secure recognition in workplaces more quickly and with fewer procedural hurdles.

Impact on SMEs

If your workforce is unionised — or if there is interest from staff in joining a union — recognition requests could now progress much faster. This leaves less time for employers to prepare and engage with staff before formal bargaining begins.

Preparation Steps

Train managers on constructive engagement with unions and maintain transparent communication with staff so that issues are resolved early and without unnecessary conflict.

Whistleblowing Protections in Sexual Harassment Cases

Employees who report sexual harassment will have stronger legal protection against dismissal or any other detrimental treatment.

Impact on SMEs

This will increase the importance of having a safe, confidential reporting process in place and ensuring that no retaliation occurs against staff who raise complaints.

Preparation Steps

Review whistleblowing and anti-harassment policies. Provide manager training on handling complaints promptly, fairly, and confidentially.

Employment Rights Bill – October 2026 Changes: What They Mean for SMEs

October 2026 will see another wave of significant reforms under the Employment Rights Bill, building on the April changes. These measures will affect pay structures, workplace conduct, industrial relations, and contractual change processes. While the focus is on improving fairness and transparency for workers, the reforms will place additional compliance, training, and budgeting requirements on SMEs.

Fair Pay Agreement – Adult Social Care

The government will establish a formal “Negotiating Body” to agree legally binding minimum pay rates, holiday entitlements, and other conditions for all adult social care workers in the UK. This model is designed to bring consistency across the sector, reduce staff turnover, and tackle low pay, which has been a persistent issue in care work.

Impact on SMEs

For SME care providers, this will mean no longer setting pay rates solely based on local market competition or internal budget constraints. National terms will take precedence, and it is likely that pay rates will rise above what many small operators currently pay. This could also have a knock-on effect on recruitment, as providers unable to offer rates above the agreed minimum may find it harder to compete for staff.

Preparation Steps

Begin by comparing your current pay and conditions to those anticipated under the Fair Pay Agreement. Prepare financial forecasts to assess the impact of higher payroll costs and factor this into your pricing, funding applications, or contracts with local authorities. Staying informed on the consultation and negotiation process will allow you to plan for the finalised terms as early as possible.

Tipping Law Reform

From October 2026, all tips, gratuities, and service charges must be given to workers in full, with no deductions other than those required for tax purposes. Employers will be required to maintain transparent records of how tips are collected, distributed, and calculated, and workers will have the legal right to request access to this information.

Impact on SMEs

This change will particularly affect SMEs in the hospitality, catering, and service industries. Practices such as deducting amounts for administration, breakages, or till shortages will no longer be allowed. Businesses with informal or cash-based tipping systems will need to introduce formal, documented processes. The administrative burden of tracking and reporting tips accurately will increase, and reputational risk will be higher if customers or employees perceive unfairness.

Preparation Steps

Audit your current tipping arrangements to ensure they are lawful under the new rules. Create a clear, written tipping policy to share with staff, explaining exactly how tips are handled. Set up systems to record every tip received and distributed, whether in cash or electronically, and ensure these records can be made available if requested by staff or an enforcement body.

Duty to Inform Workers About Union Rights

Employers will be under a statutory duty to inform all workers of their right to join a trade union. This must happen at the start of employment and at other prescribed intervals, and employers will also be required to allow union officials access to the workplace to meet with workers.

Impact on SMEs

This change applies even to small businesses that do not currently have a union presence. It means you must integrate information on union rights into your induction process and be prepared to accommodate visits from union officials. For SMEs unfamiliar with union activity, this may require changes to how visitors are managed and how internal communications are handled to ensure compliance.

Preparation Steps

Develop standard induction materials that clearly explain workers’ rights to join a union. Review your workplace visitor procedures to make sure they allow lawful access for union officials while still maintaining security and safety standards. Consider training managers on how to respond appropriately to union engagement and questions from employees.

Extended Employment Tribunal Time Limits

The time limit for most Employment Tribunal claims will increase from three months to six months from the date of the alleged incident or dismissal. This applies to claims such as unfair dismissal, discrimination, or breach of contract.

Impact on SMEs

A longer claims window means disputes you thought were resolved could resurface months later. This increases the need for accurate, comprehensive record-keeping to support your position if a claim is made. SMEs will also need to remain vigilant in addressing grievances promptly, as unresolved issues may now linger longer before becoming formal claims.

Preparation Steps

Ensure that HR and management records — including meeting notes, emails, letters, and investigation reports — are kept for at least 12 months. Create a clear process for documenting decisions and communications relating to employee relations issues. This will provide crucial evidence should a claim arise after several months.

Stricter Rules on “Fire and Rehire”

“Fire and rehire” — the practice of dismissing staff and re-engaging them on new terms — will be subject to tougher legal requirements. Employers will need to prove they have taken all reasonable steps to avoid dismissal, including carrying out exhaustive consultation, exploring alternatives, and providing evidence that contractual changes are genuinely necessary.

Impact on SMEs

This will make it more complex and time-consuming to introduce contractual changes. SMEs that previously relied on quick changes to adapt to economic or operational pressures will need to factor in longer consultation periods and a greater risk of challenge if staff or unions dispute the necessity of the changes.

Preparation Steps

Develop a structured change management process that includes detailed consultation steps and thorough records of all alternatives considered. Involve staff early in discussions about proposed changes and provide transparent evidence for why changes are needed. This will help demonstrate compliance if challenged.

Sexual Harassment Prevention Duty

Employers will have a legal duty to take “all reasonable steps” to prevent sexual harassment in the workplace. This duty will also extend to harassment by third parties such as customers, suppliers, and contractors, meaning employers could be liable for incidents involving people outside their direct workforce.

Impact on SMEs

This places a stronger emphasis on prevention rather than reaction. Businesses could face claims even if no harassment has yet occurred, if they cannot show they took proactive steps to prevent it. This could include training, policy updates, workplace risk assessments, and prompt handling of any concerns raised.

Preparation Steps

Review and update anti-harassment policies to specifically address third-party risks. Provide regular training for all staff and managers on identifying, preventing, and reporting harassment. Keep detailed records of the measures taken, including training attendance, policy distribution, and any preventative initiatives.

Extended Trade Union Protections

Workers will receive stronger protections against unfair treatment or dismissal for taking part in industrial action. Trade union representatives may also receive additional rights, such as paid time off for union duties and enhanced protection from dismissal.

Impact on SMEs

Unionised workplaces may see a greater frequency of industrial action or more assertive union activity. Employers will need to manage disputes more carefully to avoid breaching these strengthened protections, which could result in costly tribunal claims.

Preparation Steps

Train managers on lawful handling of union activity and industrial action, ensuring they understand the limits of what they can say or do in these situations. Build constructive relationships with union representatives to promote cooperation and resolve disputes early, before they escalate into industrial action.