Employment rights reform: why preparation matters

Employment rights reform is firmly on the agenda, with a number of changes under the Employment Rights Act 2025 coming into force across 2026 and 2027. Much of the discussion focuses on principles, fairness, flexibility and protection for workers. These aims are widely recognised and supported.

What is less explored is how these changes will work in practice for employers, particularly small and medium-sized businesses that must adapt systems, policies and budgets, carrying the cost before any longer-term benefit is felt.

This is not about supporting or opposing policy. It is about understanding impact and helping businesses prepare in a practical, proportionate way.

Phased reform, cumulative impact

The government has been clear that changes in the Employment Rights Act will be introduced gradually, giving businesses time to adapt. That is helpful, but it can also create a false sense of comfort. It is important not to underestimate the combined impact of multiple changes.

Each change may look manageable on its own:

• Statutory Sick Pay (SSP) payable from day one
• Family leave rights from day one
• Stronger unfair dismissal protections
• Increased record-keeping and enforcement requirements

In practice, employers will experience these changes together, layered onto existing payroll, systems, policies and cashflow planning.

For many small businesses, payroll is not just about paying staff; it is a key part of compliance, risk management and financial control.

Statutory Sick Pay: planning for cost increases

The removal of the waiting period and lower earnings threshold for Statutory Sick Pay significantly widens eligibility.

From a payroll and budgeting perspective, this may result in:

• More paid absences
• Reduced ability to absorb short-term disruption
• Higher costs in sectors with variable attendance patterns

This is a significant change impacting payroll and HR. Employers must understand the financial impact and plan accordingly so there are no surprises. You can read more about what this means and actions to take here: New Statutory Sick Pay (SSP) rules and actions employers need to take.

Day one rights and workforce planning

Day one access to paternity and parental leave removes a long-standing qualifying period. While this is a positive development for employees, it does require employers to think differently about workforce planning. This change could mean:

• Less predictability during new starter periods
• Greater need for contingency planning
• More complex policy management for small teams

Large organisations will most likely absorb this structurally. Smaller employers will feel it operationally, which is why forward planning is so important.

Compliance risk is changing

Stronger enforcement mechanisms and longer record-retention requirements change where risk sits for employers.

In simple terms:

• Errors are easier to identify
• Inconsistent payroll and HR records are more exposed
• Informal practices carry greater risk

Many small businesses are not negligent. They are under-resourced. Recognising this distinction is key to providing the right support.

Why tone and clarity matter alongside the detail

The creation of the Fair Work Agency, and the appointment of its leadership - CEO Lisa Pinney MBE working alongside Chair Matthew Taylor - signals a clear intention to strengthen consistency and enforcement.

Strong leadership and consistent application of the rules can create clarity for everyone. For employers, this makes it easier to understand expectations and plan accordingly.

However, how the guidance is communicated matters just as much as what it contains. When employers engage with government guidance, they are not just reading policy and technical details. They are absorbing signals about trust, expectation and risk, whilst looking for reassurance and a sense that support is available.

For many small businesses, particularly those without in-house HR or legal teams, the early impression is that they may not feel wholly supported, which may pose a risk of disengagement.

Businesses that disengage or delay will face:

• Unplanned cost increases
• Reactive payroll corrections
• Rushed policy updates
• Employee relations issues that escalate unnecessarily

Preparation goes beyond compliance. It helps protect your business financially, operationally, and reputationally.

Encouraging early engagement, education and prevention helps employers address issues before they escalate. From an employer relations perspective, this approach supports better outcomes for everyone involved.

Early planning to manage changes

Employment reform reflects social priorities. For employers, it also reflects practical and economic realities.

Small businesses do not need persuading. They need clarity, proportion and practical pathways to comply.

With the right advice and early planning, these changes can be managed confidently.