The Employment Rights Act 2025 is not a future concern. Its first major wave of changes took effect on 6 April 2026, and if you run an SME in the UK, several of those changes carry direct financial consequences that start from the moment an employee joins your business or calls in sick. This is not about legal theory — it is about cash flow, payroll exposure, and the growing reach of a new enforcement body that has been given real investigative powers.
Start with sick pay, because the numbers matter. From 6 April 2026, Statutory Sick Pay applies from the first day of sickness absence. The three-day waiting period is gone. So is the lower earnings limit, which previously excluded lower-paid workers from entitlement altogether. The rate is now 80% of the employee’s average weekly earnings or £123.25, whichever is lower. For a small team, even a modest increase in short-term absence events will have a measurable effect on your payroll costs. To put the broader picture in context, SMEs already lose £29 billion annually due to sickness-related productivity losses, and 42% of firms reported that SSP reforms will have a negative impact on their business. If your absence management processes are informal or inconsistent, that is now a financial vulnerability, not just an administrative inconvenience.
The wage pressure compounds this. The National Living Wage rose to £12.71 per hour for workers aged 21 and over on 1 April 2026. If you have staff at or near that rate, you are already absorbing the direct cost increase. The less obvious risk is wage compression — where the gap between your lowest-paid staff and those on the next rung narrows, creating pressure to adjust salaries further up your pay structure to maintain differentiation and morale. This is a planning problem as much as a payroll one, and it is one that catches business owners off guard when they focus only on the minimum wage floor rather than the structure above it.
The redundancy and enforcement risks you cannot afford to ignore
If your business ever faces a situation where 20 or more staff are made redundant within a 90-day period, the exposure has increased sharply. The maximum protective award for failing to collectively consult has doubled to 180 days’ pay per employee. This is the penalty a tribunal can impose when an employer does not follow the correct collective redundancy process — and it applies per employee. For a business making 30 redundancies without proper consultation, the liability could run into hundreds of thousands of pounds. The process itself has not changed fundamentally, but the cost of getting it wrong has.
On family leave, the position has shifted significantly for employers who relied on qualifying service periods as a buffer. Paternity leave, which previously required 26 weeks’ service, and unpaid parental leave, which previously required one year’s service, are now available from day one of employment. This means the moment someone joins your business, these entitlements are live. Your employment contracts, your HR policies, and any onboarding documentation that references qualifying periods need to reflect the current position.
The government has established the Fair Work Agency as a central enforcement body, with authority to inspect business premises and audit HR documentation. This signals active enforcement rather than a grace period. The agency is not simply a complaints handling service — it has investigative reach. If your contracts are out of date, your absence records are inconsistent, or your redundancy procedures have not been reviewed, the risk is no longer hypothetical. Businesses that operate on the assumption that enforcement only follows employee complaints are misreading how this new body is structured.
What is still coming — and why a reactive approach costs more
The April 2026 changes are the first instalment, not the full picture. Changes to unfair dismissal protections are due on 1 January 2027, but may require action from employers now. That is a significant point. Waiting until late 2026 to review your dismissal procedures, probationary clauses, and documentation standards leaves you very little margin. Employment tribunal processes are slow; the time to build compliant systems is before you need them.
On top of that, a new duty will rest on employers to take all reasonable steps to prevent all forms of harassment, including by third parties such as customers or suppliers, with implementation expected January 2027. For businesses that interact regularly with clients or have customer-facing staff, this extends your duty of care in a meaningful way. You will need policies, training records, and a clear process for handling third-party harassment complaints. The standard is preventative, not reactive.
The pattern here is clear. This is a rolling programme of legislative reform across multiple years. Each wave builds on the last, and the businesses that treat each change in isolation — updating one policy, ignoring the broader shift — are accumulating risk rather than managing it. The financial penalties attached to the April 2026 changes alone should make the cost of inaction plain. The doubled redundancy award exposure, the expanded SSP liability, and the presence of an active enforcement agency mean that the compliance question is now a business risk question. My recommendation is straightforward: audit your current employment documentation against the April 2026 position now, and begin planning for the January 2027 changes before the end of this year.
