Unpacking the Employment Rights Act

In my role with the Institute of Directors (IoD), I consider myself very fortunate to be able to lean on the domain expertise of a number of industry specialists.

Michaela Gartside, IoD Surrey and Berkshire Branch Ambassador for Human Resources (HR), is no exception to this.

With the Employment Rights Act (ERA) recently coming into force, I recently caught up with Michaela about the Act.

In our conversation, we reviewed the legislation as it is understood currently, and discussed its potential impact upon IoD members, in particular, small and medium-sized businesses (SMEs).

Finally, we spent time discussing the additional legislative changes under the ERA that are planned to be introduced over the course of the coming 12 months.

Feel free to get involved in the comments with your thoughts on the Act. Meanwhile, feel free to reach out to Michaela for any further information you may need.

Here’s how our conversation went…

Martin: Michaela, great to catch up with you, let’s start from the beginning. The Employment Rights Act, tell me how exactly the Act came about and how did we get here?

Michaela: Thanks Martin, great to be with you. Regarding the Act, it originates from one of the Labour Party’s manifesto pledges ahead of the 2024 General Election.

The aim of the Act is, in their words, to improve the in-work experiences and working lives of all employees.

Hence, in their manifesto they identified a number of areas that they felt needed attention in order to, from their perspective, address a perceived imbalance of power between employees and employers.

As a result, we had the Employment Rights Bill, which was a manifesto commitment to be delivered within the first 100 days of parliament.

Martin: Okay, understood. Hence, this became the Employment Rights Act 2025, which itself was formally passed in Parliament at the end of last year?

Michaela: Correct, however, some elements of the Act are still under consultation, while some of the elements most likely to impact upon SMEs are due to come into force from April of this year.

For example, material changes to Statutory Sick Pay (SSP) will come into force from April. Let me summarise them for you.

Firstly, under the existing scheme, SSP is payable only from day 3 of an employee’s illness. However, under the new scheme, SSP will become payable from day 1.

In addition to this, the existing threshold for eligibility is the lower earnings threshold, this threshold will be removed from April.

Hence, if one takes a typical example in the hospitality or retail sector, where an employee might typically perform an 8-hour shift each weekend, there is a significant increase in liability. Meanwhile, employees themselves are presented with somewhat reduced incentives to perform those hours.

Martin: I can only see this further hindering those sectors already impacted by the administration’s additional employment taxes and above inflation National Minimum Wage increases.

Furthermore, this will surely further limit the number of entry-level employment opportunities for those in the 18-25 age cohort that find themselves already struggling to gain meaningful employment?

Michaela: I completely agree.

Martin: Are there any other material changes coming in from April that we should be aware of?

Michaela: Yes, statutory paternity leave and parental leave will both be extended to become a day one employment right.

At the present time you need to have been with your employer for at least 26 weeks to become eligible for either.

Martin: So, in theory, a new employee could agree to start employment and then immediately take 2 weeks unpaid statutory paternity leave? Again, this can only be a negative for employers looking to plan business activities effectively?

Michaela: Correct…

In addition, there is the introduction of a new body called the “Fair Work Agency”.

Our understanding is that this organisation is being set up to take some of the burden away from the existing tribunal process, whereby the new agency will take responsibility for tackling some of the cases that need not be tackled by tribunal.

In addition to this, from April the existing “separate establishment rule” will be removed.

Under the current framework, an organisation wishing to make 30 or more redundancies at an individual work site is duty bound to introduce collective consultation, as opposed to individual consultation.

From April, the existing collective redundancy process, which permits separate establishments within the same business, will be removed.

Therefore more organisations will likely fall under this umbrella, which comes with more responsibilities, thereby requiring increased HR effort and consultation.

This includes formal notification of the Department of Work and Pensions that 20 or more redundancies are scheduled, and the appointment of employment representatives and / or union representation.

Martin: A cynic might suggest this is an attempt by the administration to incentivise greater Union representation in the workplace and, as a consequence, increased annual subscriptions that will support Labour Party funding…

Is that all the changes due to come into force?

Michaela: For April, yes, those are the main changes agreed to date. However, there are other items that are either scheduled for the future or already under consultation.

For example, the government is legislating to respond to some of the notable historical “fire and rehire” cases.

We do not yet have all the detail of this as the legislation is currently under consultation. However, this could potentially impact employers that change site location or adapt their home working policies.

Martin: Is suspect this is unlikely to impact SMEs greatly is it not?

Michaela: Agreed. However, another change coming into force from October this year that is more likely to impact SMEs is the changes around responsibility of employers with regard to sexual harassment.

Under the current legislation, employers must take “reasonable steps” to prevent sexual harassment in the workplace.

From October of this year, the wording associated with this legislation is being augmented to state that “all reasonable steps” must be taken by employers. While we are uncertain exactly how this will play out, this will likely be something that materially impacts both the retail and hospitality sectors.

Martin: I suspect that in response to this, employers in those sectors will increasingly focus upon automation and technology, with a detrimental impact upon entry-level job opportunities.

Michaela: Finally, and possibly one of the most significant changes, there are changes to the right to claim for unfair dismissal.

This was the area in which the House of Lords managed to gain some concessions from the original bill, which proposed that unfair dismissal claims become a day one right for all employees.

This was proposed as a change to the current legislation, whereby unfair dismissal can be claimed by employees with at least two years’ service.

The House of Lords managed to limit this to a period of six months.

Although this is obviously a better outcome for businesses than the initial proposal, this still has the potential to become extremely problematic for employers.

For example, if one takes the example of a typical sales role, an employer will find it very difficult to make an assessment of a new sales representative’s ability to build and develop a sales pipeline from a standing start in such a short period of time, particularly given that a notice period will need to be factored in to the aforementioned 6 month period.

Similarly, if one considers individuals hired to work during term time only, we would advise hiring decisions to be deferred until after the summer break to avoid the new unfair dismissal period of 6 months to be partially consumed by that 6-week summer holiday period.

Martin: In summary, I can only see the new Act increasing employer costs, lowering entry-level opportunities, and increasing unemployment levels?

Michaela: I do agree. Furthermore, the government has already admitted that the new Act will increase costs to businesses. Their initial estimate was that the cost to business of the new act would be in the order of £5 billion. However, their estimate has since been reduced to £1 billion…

Martin: I would be interested to see a peer reviewed study of those costings…

But overall, the Act seems like a highly significant change to employment practices.

Michaela: It most certainly is. The Employment Rights Act reflects the most significant change to employment law that I have seen in my 40 year career in HR.

Martin: Wow, that is quite some statement!

So tell me, what are you seeing amongst the clients you speak to in terms of their planning for April?

Michaela: Many employers remain relatively uninformed of the changes coming down the line. However, the ones that are engaged are starting to prepare themselves in a number of ways.

Firstly, we are working with many employers in the adaption of their onboarding processes and practices ahead of the changes to unfair dismissal coming in next January.

Also, some organisations will be looking to manage complex employee situations ahead of the planned reduction of the unfair dismissal period to 6 months in January of next year.

Similarly, many organisations will be carefully reviewing sick pay practices.

Such is the significance of the changes coming down the line that some employers are already exploring off-payroll working options. Equally, we see employers looking towards technological or automated solutions instead of replacing employees who have recently given notice.

As time progresses, we foresee many of the larger employers being likely to have an even greater reliance upon their existing HR capacity.

However, this can be a challenge for SMEs, both in terms of bandwidth and cost.

Martin: I guess that’s where your practice comes in useful to SMEs, isn’t it? Please do tell me how your organisation operates and how it can support those SMEs looking to tackle the challenges that the new Act brings?

Michaela: Thanks Martin for the opportunity to talk this through today. At HR Dept Bracknell, Windsor and Heathrow, we have been supporting SMEs in the field of HR management for circa 13 years. Any businesses looking to navigate the new Act, or indeed facing any other HR challenges, should get in touch with us on either our LinkedIn company page or on our website.

Martin: That’s super, thanks again Michaela for taking the time to share your views on the Act with me. Let’s see how things progress in the coming months. Here’s hoping that the Act doesn’t cause the same numbers of job losses as the 2024 Autumn Budget.

Post Meeting Edit:

3rd February 2026 saw the release from the Government of an updated implementation plan. Timings remain under review as they continue to consult and develop the details of the policies.

Notable changes include moving Fire and Rehire protections to January 2027 and stating measures to change employment tribunal time limits to “no earlier than October 2026”

Whilst it remains dynamic, we now at least have more certainty over the implementations for April 2026.