UK Employment Rights Act 2025: Every change employers need to prepare for

The Employment Rights Bill is now the Employment Rights Act 2025. It received Royal Assent on 18 December 2025, marking the most significant overhaul of UK employment law in over 30 years.

The Act is the centrepiece of the Labour government’s “Plan to Make Work Pay”, first outlined before the 2024 general election. After 14 months of parliamentary debate, amendments, and last-minute compromises between the House of Commons and House of Lords, the final legislation looks quite different from what was originally proposed. Day one unfair dismissal rights, for example, didn’t make it into the final Act. But plenty else did.

The changes are being rolled out in phases across 2026 and 2027, with around 26 government consultations expected this year to finalise the details. Some provisions are already in force. Others won’t take effect until 2027. For employers, the challenge is understanding what’s coming, when, and what needs to be done to prepare.

What’s happening: The qualifying period for ordinary unfair dismissal claims drops from two years to six months. And the compensation cap is being removed entirely.

What this means for you: Currently, unfair dismissal compensation is capped at the lower of one year’s pay or approximately £118,000. From January 2027, that ceiling disappears. For high earners, this fundamentally changes the maths on every termination.

Anyone employed by 1 July 2026 who is still employed on 1 January 2027 will automatically have unfair dismissal protection from that date. That’s not a typo. If your employee hits six months’ service by January 2027, they’re protected.

The government estimates an additional 6.3 million employees will gain unfair dismissal protection under these changes, generating around 9,000 extra referrals to Acas annually, with approximately 3,000 progressing to tribunal claims.

What’s happening: Statutory Sick Pay becomes payable from day one of sickness absence. The three-day waiting period is removed. The lower earnings limit is abolished entirely.

What this means for you: Previously, employees earning below £123 per week didn’t qualify for SSP. From 6 April 2026, all workers are eligible. For lower earners, SSP will be calculated at 80% of average weekly earnings or the flat rate (set at £123.25 for 2026), whichever is lower.

We know those numbers can add up fast. An estimated 1.3 million additional workers will become eligible for SSP under these changes.

Workers already serving waiting days on 6 April 2026 will become eligible for SSP immediately. Workers already receiving SSP who would see a reduction due to the new 80% calculation will receive transitional protection, continuing at the flat rate until they return to work or exhaust their entitlement.

What’s happening: Dismissing employees and rehiring them on worse terms will become automatically unfair dismissal in most circumstances.

What this means for you: The practice of terminating contracts to force through changes to pay, pensions, working hours, shift patterns, or time off will no longer be viable. The exception applies only where the employer faces financial difficulties so severe they affect the ability to carry on as a going concern, and the changes couldn’t reasonably have been avoided.

The restrictions also cover “fire and replace” scenarios, where employees are dismissed and replaced with self-employed contractors, agency workers, or other non-employees to do substantially the same work.

Changes to other contract terms (like place of work or duties) won’t trigger automatic unfair dismissal, but tribunals will need to consider the reason for the variation, any consultation undertaken, and what the employee was offered in return.

What’s happening: The Act doesn’t ban zero-hours contracts, but it introduces a right to guaranteed hours. Employers must offer qualifying workers a contract reflecting the hours they’ve actually worked over a reference period (expected to be 12 weeks).

What this means for you: At the end of each reference period, you’ll need to assess whether a zero-hours worker qualifies for a guaranteed hours offer. If they do, you must make that offer. They can decline, but you’ll have to offer again at the end of the next reference period.

This extends to agency workers too. The hirer will generally be responsible for making the offer, and if the agency worker accepts, they become the hirer’s worker. Pay offered must be no less favourable than either agency terms or comparable direct workers.

There are anti-avoidance measures to prevent employers gaming the system by reducing hours or terminating contracts to avoid triggering obligations. Such dismissals will be automatically unfair.
Workers will also have the right to reasonable notice of shifts, and to compensation if shifts are cancelled, moved, or cut short at short notice. “Short notice” is defined as under 48 hours.

What’s happening: Employers will be liable for harassment of their employees by third parties (customers, clients, suppliers, members of the public) unless they can demonstrate they took “all reasonable steps” to prevent it.

What this means for you: One incident may be enough to establish liability. This applies to all types of harassment, not just sexual harassment. The bar moves from “reasonable steps” to “all reasonable steps”, which is a significantly higher threshold.
The government recognises that steps to prevent third parties from harassing employees will necessarily be more limited than those for co-workers. But you still need to demonstrate you’ve done what you reasonably could.

For the duty to prevent sexual harassment specifically, you must take “all reasonable steps” (upgraded from the current “reasonable steps” standard introduced in October 2024). In 2027, regulations will specify what “reasonable steps” actually means in practice.

What’s happening: Any provision in a contract or settlement agreement that prevents a worker from making allegations or disclosures about harassment or discrimination will be void.

What this means for you: NDAs can no longer be used to silence workers about workplace harassment or discrimination. This includes disclosures about how the employer handled such allegations, not just the original misconduct. The ban applies to harassment from third parties as well as co-workers.

Commercial confidentiality provisions remain permissible. NDAs can still protect trade secrets or genuinely confidential business information. But they cannot prevent someone from talking to regulators, police, colleagues, or even social media about discrimination or harassment.

Regulations will set out limited exceptions, likely including agreements requested by the worker themselves with independent legal advice.

What’s happening: The maximum protective award for failure to consult on collective redundancies doubles from 90 days’ pay to 180 days’ pay per affected employee. From 2027, a new threshold test will apply, counting redundancies across your entire UK organisation rather than just individual sites.

What this means for you: Multi-site employers can no longer avoid collective consultation by distributing redundancies across different locations. The existing “at one establishment” test remains, but there will also be an alternative threshold test based on total redundancies across the business (details to be set in regulations, but likely a percentage or number such as 10% or 100 employees).

The financial penalty for getting it wrong has just doubled. If you’re proposing 20+ redundancies and fail to consult properly, you’re now looking at up to 180 days’ uncapped pay per affected employee.

What’s happening: Paternity leave and unpaid parental leave become day one rights. The current qualifying periods (26 weeks for paternity leave, one year for parental leave) are removed.

What this means for you: New employees can take paternity leave immediately. The restriction on taking paternity leave after shared parental leave is also being removed.

From 2027, there’ll be strengthened protection against dismissal for pregnant workers and those returning from maternity leave (except in specified circumstances still to be defined). There’ll also be a new right to statutory bereavement leave (details on whether this will be paid or unpaid still to be confirmed), extended to cover pregnancy loss before 24 weeks.

What’s happening: Employers will only be able to refuse a flexible working request if it is reasonable to do so. If you refuse, you must explain in writing both the specific ground for refusal and why you consider the refusal reasonable.

What this means for you: The eight existing statutory grounds for refusal remain unchanged (cost, customer demand, inability to reorganise work, etc.). But tribunals will now be able to consider whether your refusal was reasonable, not just whether you followed the correct procedure.

This isn’t a right to flexible working. Employers can still refuse requests. But you’ll need clear evidence that your refusal is genuine and reasonable, supported by a properly documented rationale.

What’s happening: Time limits for bringing employment tribunal claims will increase from three months to six months for almost all types of claims.

What this means for you: Employees will have twice as long to bring claims. Combined with the shorter unfair dismissal qualifying period and uncapped compensation, expect more claims and longer exposure periods.

The government hopes the extension of the Acas Early Conciliation period from six weeks to twelve weeks (already in effect from December 2025) will help manage volumes. But the tribunal system is already stretched.

What’s happening: Employers will have a new duty to inform workers of their right to join a trade union. Trade unions gain a statutory right of access to workplaces for recruitment, organising, and collective bargaining purposes.

What this means for you: You’ll need to provide workers with a written statement confirming their right to join a trade union, given at the same time as their statement of employment particulars. Regulations will specify whether periodic reminders are required.

Trade unions will be able to request physical and digital access to your workplace. You should take reasonable steps to facilitate access, and can only refuse entirely where it’s reasonable in all circumstances. The Central Arbitration Committee can order access if agreement can’t be reached.

The statutory trade union recognition process is also being simplified. The threshold for union membership in a proposed bargaining unit can be reduced from 10% to as low as 2%. The 40% turnout requirement for recognition ballots in important public services is being removed.

What’s happening: A new single enforcement body consolidating national minimum wage enforcement, employment agency regulation, gangmaster licensing, and action against labour exploitation. It will also take on enforcement of holiday pay and statutory sick pay.

What this means for you: Expect more proactive enforcement. The Fair Work Agency will have powers to investigate, issue penalties, bring tribunal claims on behalf of workers, and recover costs from employers.

A new obligation requires employers to keep records showing compliance with holiday entitlement for six years. Failure to do so is a criminal offence with potential unlimited fines.

It doesn’t matter where your company is incorporated or what law governs your contracts. If someone works in the UK, UK employment law applies. That includes:

• The six-month unfair dismissal qualifying period and uncapped compensation
• SSP from day one with no earnings threshold
• All the harassment protections and third-party liability
• Collective redundancy obligations
• Trade union rights

Managing UK employees from overseas just got more complex. You’ll need:

• UK-compliant contracts that reflect day one family leave rights
• Policies on harassment that meet the “all reasonable steps” standard
• Systems to track zero-hours working patterns
• Settlement agreement templates that comply with NDA restrictions
• Record-keeping that satisfies the Fair Work Agency’s requirements

If you’re using an Employer of Record to employ UK staff, the EOR takes on the legal employer relationship. But choosing the right partner matters more than ever.

With uncapped unfair dismissal compensation, strengthened harassment duties, and a new enforcement agency with expanded powers, the consequences of getting things wrong have increased materially. An EOR that cuts corners on compliance isn’t just a liability for them. It affects your workers, your reputation, and your ability to operate in the UK.

The Employment Rights Act 2025 doesn’t exist in isolation. It sits alongside:

• Existing Equality Act 2010 protections
• Gender pay gap reporting requirements (for employers with 250+ employees)
• Right to work checks and immigration compliance
• Data protection obligations under UK GDPR
• The incoming Equality (Race and Disability) Bill, expected in early 2026

If you’re growing a team in the UK, you need a partner who understands how all these pieces fit together, not one who’s scrambling to catch up.

Review contracts and policies: The October 2026 deadline for fire and rehire is approaching. If you need flexibility on pay, hours, or benefits, act now.

Strengthen performance management: With the unfair dismissal qualifying period dropping to six months and compensation uncapped, robust probationary processes and performance documentation become essential.

Prepare payroll systems: SSP changes in April 2026 require system updates. Talk to your payroll provider now.

Audit harassment policies: The “all reasonable steps” standard requires proactive risk assessment, not reactive response. Include third-party harassment scenarios.

Review NDAs and settlement agreements: Remove any clauses that could prevent harassment or discrimination disclosures.

Track zero-hours working patterns: If you use flexible contracts, you need systems to monitor hours and trigger guaranteed hours obligations.

Prepare trade union communications: Have statements ready for new starters confirming their right to join a union.

Budget for increased costs: SSP from day one, higher protective awards, potential uncapped unfair dismissal claims. The financial landscape is shifting.