Employment Rights Act 2025: The Most Important Changes Employers Must Prepare For

The Employment Rights Act 2025 (ERA 2025), which received Royal Assent on 18 December 2025, introduces major reforms that will be phased in throughout 2026–2027.Below is a clear breakdown of the key, high‑impact changes that employers and employees need to prepare for now.

1. Unfair Dismissal – Shorter Qualifying Period and No Compensation Cap

Effective from 1 January 2027:

• • the qualifying period for unfair dismissal claims will drop from 2 years to 6 months

• • the statutory cap on the compensatory award will be removed

  
  

Why this matters:

This significantly increases litigation risk. Even relatively new employees will gain strong protection, and compensation awards may be considerably higher than before.

Employer preparations:

• • strengthen probation processes

• • train managers on documentation and procedural fairness

• • justify dismissals clearly, even in early months of employment

2. Zero‑Hours Contracts – Guaranteed Hours and Cancellation Pay

Coming in April or October 2027:

New rights for workers on zero‑hours arrangements include:

• • entitlement to guaranteed hours reflecting previous working patterns

• • requirement for reasonable notice of shift schedules

• • mandatory compensation where shifts are cancelled at short notice

Industries most affected:

Hospitality, retail, social care, warehouse and delivery work – any sector relying heavily on flexible scheduling.

3. Statutory Sick Pay Reform – April 2026

From April 2026, SSP will undergo substantial reform:

• • removal of waiting days — SSP payable from day one of sickness

• • removal of the Lower Earnings Limit

• • weekly rate set at £118.75 or 80% of weekly earnings, whichever is lower

Employer implications:

• • increased costs for short‑term absences

• • payroll system changes

• • updates to sickness policies

4. Family‑Related Rights Become Day‑One Rights – April 2026

Parental Leave

Will become a day‑one entitlement, eliminating the previous one‑year service requirement.

Paternity Leave

• • becomes a day‑one right

• • may be taken after Shared Parental Leave

Impact:

HR processes, onboarding, and entitlement checks must be updated to reflect that length of service will no longer be relevant.

Employer Action Checklist

• • update HR policies on sickness, parental rights, flexible working, scheduling

• • audit zero‑hours practices and shift‑planning systems

• • update training for managers on fair dismissals and improved documentation

• • re‑assess financial and legal exposure under uncapped unfair dismissal awards

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