The 2026 Legal Update: Employment Rights Act 2025 - What Every SME Needs to Know
18 February 2026
Latest News
The Employment Rights Act 2025 represents one of the most significant reforms to UK employment law in recent years. As key provisions come into force throughout 2026, employers should carefully review their existing practices to ensure alignment with the new statutory framework.
These legislative changes introduce additional obligations for employers and enhanced protections for employees. For SMEs in particular, the practical and financial implications require early consideration and structured planning to mitigate risk.
This update outlines the scope of the reforms, the principal changes taking effect in 2026, and the practical considerations for smaller organisations.
In this article:
- Which businesses are affected
- A timeline of reforms taking place
- Why SMEs may face increased risk
- Practical steps to safeguard your business
- How Schofield & Associates and Schofield HR can support you
Who Is Affected?
The Bill applies universally across UK employers, irrespective of sector or workforce size.
However, SMEs often operate with:
- Limited internal HR resource
- Informal management processes
- Less structured pay and grading frameworks
As a result, compliance adjustments may require more foundational changes when compared to larger, highly regulated organisations.
Timeline of Reforms Taking Effect
Changes from February 2026:
- Trade Union Measures: Simpler requirements for trade unions are due to come into force on the 18th of February 2026, including the removal of the rule that, in ballots involving important public services, at least 40% of all eligible voters must vote in favour of industrial action, extension of legal mandate period for industrial action, from six months to 12 months, and protections against dismissal for taking industrial action. Further changes are expected to roll out throughout the year and into 2027.
Changes from April 2026:
- Statutory Sick Pay (SSP): in April 2026, more employees will qualify for SSP following the removal of the lower earnings limit. Lower-wage employees will be entitled to sick pay of 80% of their wages. The three-day waiting period will also be removed, SSP will be payable from the first working day of sickness absence.
- Day-one Family Leave: from April 2026, employees will be entitled to Paternity Leave and Unpaid Parental Leave from the first day in a new job. Notice can be given from 18 February 2026.
- Bereavement Leave Protection: families who experience pregnancy loss before 24 weeks will be entitled to protected bereavement leave now, extending on from the current protections in place for families suffering pregnancy loss before 24 weeks.
- Collective Redundancy Protections: increase protective award for failure to collectively consult are set to come into force.
- Whistleblowing Protections: stronger protections are set to come into force for workers who report/complain about harassment.
- Simpler Enforcement Through the Fair Work Agency: A new body to uphold workers' rights is set to be established and support businesses with compliance.
Changes from October 2026:
- Tribunal Time Limits: time limits to bring most claims to the employment tribunal will be increased from three to six months.
- Sexual Harassment Prevention: the employer duty to prevent sexual harassment will be upgraded from taking "reasonable steps" to taking "all reasonable steps" and the obligation on employers to prevent harassment and sexual harassment on the grounds of all the protected characteristics comes into force.
Changes from 2027:
- Statutory Cap Removal – the statutory cap on compensation for unfair dismissal is set to be removed on the 1st of January 2027. Tribunals will no longer be limited to the current, lower of one year's pay or £118,223. The qualifying period to claim unfair dismissal will reduce from two years to six months.
- Flexible Working: extending on from the already day-one right as of 2024, 2027 will see a new flexible working framework taking effect following a consultation period that is due to end on the 1st of April 2026.
- Zero-hours/Low Hours Workers: in aim of banning exploitative zero-hour contracts the Labour party has pledged to give workers the right to a contract that reflects regular worked hours, compensation for cancelled and short notice shift, and reasonable notice in changes in shifts. The implementation of the consultation which ended on the 2nd of December 2024, is set to be implemented in 2026 with the aim of bringing the zero-hour protections into force in 2027.
- Sexual Harassment Prevention Clarity: new regulation is set to come into force in 2027, to define the requirements of taking "all reasonable steps" to prevent harassment for employers.
- Fire and Rehire: new defined categories of "restricted variations" will come into force where it will be deemed automatically unfair to dismiss and offer re-engagement on new terms unless a financial necessity test is met. 1st of April 2026 marks the end of the consultation period in defining the scope of these restrictions. Fire and rehire protections are expected to come into force in January 2026.
- Collective Redundancies and Fire and Rehire: It will also be automatically unfair to dismiss an employee where they are to be replaced by "an individual who is not an employee of the employer" and that individual will undertake the same or substantially the same activities as the employee performed prior to dismissal.
Why SMEs Should Pay Particular Attention
SMEs may face proportionately higher risk for several reasons:
- Concentrated Operational Impact
In smaller teams, any change to scheduling, redundancy planning or leave management has immediate operational consequences.
- Informal Practices
Many SMEs rely on custom and practice rather than fully documented processes. The new framework demands greater formalisation.
- Resource Constraints
Updating contracts, training managers and conducting pay reviews require time and budget allocation.
The combination of these factors means that delay increases both legal and operational risk.
Practical Steps to Take in 2026
1. Audit Existing Documentation
Review employment contracts, staff handbooks, redundancy procedures and
recruitment templates.
2. Formalise Pay Structures
Introduce or refine salary banding to align with pay transparency requirements.
3. Update Redundancy Protocols
Ensure alternative vacancy procedures are clearly documented and consistently
applied.
4. Review Casual Worker Arrangements
Examine shift scheduling systems and cancellation policies.
5. Train Line Managers
Managers should understand their obligations in relation to family leave,
redundancy protections and scheduling compliance.
6. Strengthen Record Retention
Maintain clear audit trails for recruitment, pay decisions and redundancy
consultations.
Strategic Considerations
Compliance should be approached not only as a legal necessity, but as part of broader governance and risk management.
A structured and transparent employment framework can:
- Reduce exposure to tribunal claims
- Improve workforce stability
- Enhance employer credibility
- Support sustainable growth
Early alignment with legislative change is generally more cost-effective than reactive correction following a dispute.
How Schofield & Associates and Schofield HR Can Assist
Schofield & Associates and Schofield HR provide practical employment law support tailored to SMEs.
Our services include:
- Contract and handbook reviews
- Drafting compliant employment policies
- Pay transparency audits
- Redundancy procedure review and guidance
- Management training
- Investigation and disciplinary support
Our focus is on proportionate, commercially sensible solutions that safeguard your organisation whilst maintaining operational flexibility.
Going Forward
The continued implementation of the Employment Rights Act 2025 throughout 2026, and into 2027, represents a substantive development in UK employment regulation.
SMEs that undertake structured review and procedural updates will be better positioned to manage legal risk and maintain workforce stability.
If you're looking for advice, then we're here to help.
Contact us at:
Eileen Schofield for Employment Law advice on eileen.schofield@schofieldandassociates.co.uk - 01564 334614
Derri Moran for HR advice on derri.moran@schofieldhr.co.uk - 07508 741505
To visit our main website pages, follow:
https://www.schofieldandassociates.co.uk/
https://www.schofieldandassociates.co.uk/hr