Labour’s flagship policy on employment, as encapsulated in ‘The Employment Rights Act 2025’, is now in force. As is usual with political parties, the implementation of some of the more controversial changes, have been delayed until April 2026, and a quite a few until 2027. So, if you’re an employer, what do you need to know now?
Background
The Labour Party published its plan to “make work pay” in its 2024 manifesto, which in essence became the basis for the Employment Rights Act 2025. The main aim of the net act was to improve/increase the benefits and protections afforded to employees.
It goes without saying that the increases in rights for employees had the inevitable flip side of increasing costs for employers. Any business owners should plan for the resulting increased costs of employment and the potential for an increased risk of claims from subsequent future implementation of further provisions of the Act, especially with regard to legally-binding changes to employment rights.
So, today I’ll take a look at the main provisions of the act and when they come into force.
Statutory sick pay
The earliest changes to impact employers on a “day-to-day” level will be the increased rights to statutory sick pay (SSP). Applicable from 6th April 2026, employees will be entitled to statutory sick pay from the first day of absence, not the fourth. Also, the lower earnings limit (currently £123 per week) will be removed, and any employee earning less will receive 80% of their weekly earnings.
The potential benefits are clear, and whilst It has probably put an end to employees turning up to work when they are clearly unfit to do so, there are concerns that during those first few days, employees will still be able to self-certify the reason for their absence, This has the obvious potential of incentivising certain individuals to take spurious time off, known to all as ‘pulling a sickie’.
In roles where employees can regularly work from home, such as customer service reps, these changes will probably have very little impact. But for employers whose staff are required to work on-site and can only offer SSP, this could have significant consequences, especially the increased costs of sick pay. This is increasing to almost £25 a day from April 6th, 2026, which will increase the cost to employer by nearly £90 for the first week of sickness.
Parental leave
Also coming into force on 6th April 2026, are changes to rights to parental leave, which will henceforth become a day-one right (currently, for paid paternity leave, the employee must have 26 weeks of service at the 15th week before the expected due date of the child).
In addition, all employees will be eligible to take paternity leave after they
have taken shared parental leave, if they so wish. This has the potential to be
devastating for many smaller businesses, especially if their employees are
predominantly in the 18 to late 30’s range.
Penalties
The act also brings in new penalties for non-compliance by the employer. Firstly, the penalties for failing to engage in collective consultation in large redundancies (where 20 or more employees are dismissed), or upon the purchase or sale of a business, with the employees transferred to another employer (known as a TUPE) are rising dramatically.
Wef 6th April 2026, the penalties for failing to follow the correct procedure are doubling to 180 days’ pay for each affected employee. So, any employer considering redundancies or a merger, will be well advised to take professional advice to ensure that they follow the correct procedures, or risk potentially very high penalties.
Trade Unions
The new Employment Rights Act is also already changing the laws concerning Trade Unions. Restrictions introduced by the last government concerning industrial action have already been repealed and the new act actively promotes trade unionism, with protections for membership and recognition of trade unions.
Employers could avoid confrontation with unions by establishing a staff council where issues such as pay or other concerns can be discussed and addressed. From an employment law perspective, anything that promotes dialogue between a business and its employees must be seen as a positive. Regardless, it’s likely that most of the measures under the act will result in some increase in an employer’s costs.
Which parts of the act are being delayed?
There quite a few, the main ones being:
- “Fire and Rehire” Restrictions: Provisions making it automatically unfair to dismiss employees for refusing to agree to “restricted variations” (such as changes to pay, hours, or holidays) are delayed until 1st January 2027.
- Unfair Dismissal Qualifying Period: The reduction of the qualifying period for protection against unfair dismissal reduced to six months (down from two years) from 1st January 2027.
- Removal of Compensation Cap: The removal of the statutory cap on unfair dismissal compensatory awards is now set for 1st January 2027.
- Workplace Balloting: The ability to use electronic balloting for statutory trade union ballots is delayed from April 2026 to August 2026 and for union recognition ballots, delayed to January 2027.
- Employment Tribunal Time Limits: The extension of time limits to bring a claim (3 to 6 months) is pushed back, with the government stating it will take effect “no earlier than” October 2026.
Other parts of the act postponed
Many other rights are now postponed to at least late in 2027, including the following measures:
- Zero-Hours Contracts: The right to guaranteed hours for workers on zero/low-hours contracts.
- Flexible Working: Enhanced requirements for employers to consult and prove “reasonableness” when rejecting requests.
- Gender/Menopause Pay Gaps: Action plans becoming mandatory.
- Bereavement Leave: The right to statutory bereavement leave is postponed pending consultations.
The government is currently running a number of consultations, all of which will close by 31st May 2026, to determine the final details of many of these delayed, complex provisions.
Accountant’s view
Clearly the full impact of the act can only be properly assessed, once all of the measures are implemented, but what is already clear is that the cost of employing a worker are going up and will continue to rise when the delayed provisions finally kick-in.
I personally agree with many of the elements of the act, especially on gender pay gaps and bereavement leave, but I am worried that with most of the provisions in the act increasing employers’ costs, many employers will be reluctant to take on new staff, especially the young and inexperienced.
