The Employment Rights Act 2025 received Royal Assent on 18 December 2025. It’s the most significant overhaul of UK employment law in a generation. While much of the coverage has centred on larger employers, the changes will fall just as hard on small, limited companies, sole traders with staff, and partnerships with employees. Most practical changes come into force across 2026 and 2027, so now is the time to understand what your obligations are.
What is the Employment Rights Act 2025?
The Act is the centrepiece of the government’s Make Work Pay agenda. It introduces new day-one employment rights, restricts certain dismissal practices, reforms statutory sick pay, and creates the Fair Work Agency, a new enforcement body. Changes are being phased in over 2026 and 2027, with the government still consulting on some of the finer detail.
1. Statutory sick pay becomes a day-one right from April 2026
From 6 April 2026, statutory sick pay (SSP) is payable from the first day of absence. The three-day waiting period is removed, as is the requirement to earn above the Lower Earnings Limit (currently £129 per week). Every employee qualifies from day one, regardless of pay or hours. If you employ anyone on part-time or variable hours, this affects your payroll budgeting. Build the cost into your forecasts now and update your payroll processes accordingly.
2. Day-one family leave rights
The qualifying period for paternity leave and unpaid parental leave is scrapped. Employees can take both from their first day in the job. Note that paternity pay still requires 26 weeks of service, but the leave entitlement itself is immediate. For small teams, a new starter could take paternity leave within weeks of joining. Contracts and HR policies need to reflect this new reality.
3. Unfair dismissal: a shorter qualifying period from January 2027
The qualifying period for unfair dismissal claims reduces from two years to six months, effective 1 January 2027. For small businesses, this shrinks the window for managing underperforming new starters considerably. Strong hiring decisions, clear inductions and early performance conversations all become more critical. If something is not working, deal with it quickly and document every single step.
4. Restrictions on fire and rehire from October 2026
From October 2026, dismissing someone because they refuse a change to a core contract term, such as pay, hours, holiday or pension, will be automatically unfair dismissal in most cases. A limited exception exists for businesses facing genuine financial collapse, but it is a high bar. Partnerships and small limited companies that adjust working arrangements informally should take legal advice before making any changes to employment terms from now on.
5. Zero-hours contracts: guaranteed hours coming in 2027
The Employment Rights Act 2025 restricts what the government describes as ‘exploitative’ zero-hours arrangements. From 2027, workers on zero-hours or low-hours contracts will have the right to a guaranteed hours offer if they have worked a consistent pattern over a certain period, expected to be around 12 weeks. Employers will also need to give reasonable notice of shifts and compensate workers for short-notice cancellations. If your business uses flexible staffing, such as a creative agency or a production company, begin auditing those arrangements now and update contracts ahead of the regulations taking effect.
6. The Fair Work Agency and new record-keeping duties
The Fair Work Agency launches in April 2026, consolidating enforcement of National Minimum Wage, holiday pay, SSP and labour provider licensing. It has powers to investigate and fine non-compliant employers. From 6 April 2026, all employers must also keep records of annual leave and holiday pay for six years, with criminal penalties for failure to do so. If your HR is currently managed informally, treat this as a firm deadline to put proper systems in place.
What does the Employment Rights Act 2025 mean for sole traders and partnerships?
Sole traders with no staff are largely unaffected by the Employment Rights Act 2025. But many sole traders, like photographers, designers, musicians, actors, and freelancers, do engage casual workers. If those arrangements amount to employment or worker status, the new rules apply. Partnerships face the same question. The key issue is correct worker classification. Getting it wrong is expensive. If you are unsure how your business is structured or whether your arrangements create employment obligations, it is worth reviewing this with an accountant. Our friendly, experienced team can help you think through how it might affect you. Call us on 0208 446 8100 today for an informal chat about your situation. If you prefer, you can contact us online.
What small businesses should do right now
The phased rollout gives you some time to get your house in order. Practical steps to take now:
- Review all employment contracts and update them to reflect new day-one rights
- Budget for day-one SSP and include it in financial forecasts
- Audit any zero-hours or casual arrangements and begin tracking working patterns
- Document performance conversations and HR decisions from day one of employment
- Confirm you have six years of holiday pay and leave record, or start maintaining them if you do not
- Take legal advice before making any changes to employee contract terms
Frequently asked questions
Does the Employment Rights Act 2025 apply to sole traders?
Only if you employ or engage workers. Sole traders with no staff are not directly affected, but those using casual or flexible labour should verify whether those arrangements constitute employment or worker status.
When does SSP change under the Employment Rights Act 2025?
From 6 April 2026. SSP is payable from the first day of absence and there is no lower earnings threshold. All employees qualify regardless of pay or hours worked.
Will the new unfair dismissal rules make it harder to hire?
Potentially yes. With the qualifying period dropping to six months from January 2027, employers have less time to assess new starters before full dismissal protections apply, making rigorous onboarding and early performance management essential.
Where can I find the official timetable for these changes?
The government publishes an up-to-date implementation timeline on GOV.UK. Plain-English guidance on all changes is also available at Acas.
About the author
Robert Green is a chartered accountant and co-founder of Green & Peter, specialist accountants for creative businesses and property investors in Whetstone, North London. To discuss how the Employment Rights Act 2025 affects your business, call 020 8446 8100 or visit greenandpeter.co.uk/contact-us/.
