Most businesses will feel this through payroll and operations, not legal theory.
Snapshot Summary
For owners and directors, the Employment Rights Act 2025 is best treated as a planning change. It shifts parts of labour cost from variable to more fixed, increases the financial downside of getting exits or restructures wrong, and extends the period in which disputes can surface.
The right response is not panic or paperwork. It is tighter decision-making, better data, and realistic scenarios in your budgets and board packs.
Day one statutory sick pay, higher redundancy penalties, longer claim windows, and bigger unfair dismissal exposure can all change your break even point and your risk profile.
Important - This article is written from a financial and strategic planning perspective. It is general information, not legal or HR advice.
What is changing and whenThe Act became law on 18 December 2025 and is being delivered in phases across 2026 and 2027.
Key dates most directors should put in the diary:
6 April 2026
• Statutory Sick Pay becomes payable from the first day of illness and the lower earnings limit is removed.
• Day one paternity leave and unpaid parental leave.
• The maximum collective redundancy protective award doubles from 90 days’ pay to 180 days’ pay per affected employee.
October 2026 (no earlier than)
• Most employment tribunal time limits extend to 6 months.
1 January 2027
• Unfair dismissal protection starts after 6 months’ service and the compensatory award cap is removed.
• Most dismiss and rehire on worse terms becomes automatically unfair
During 2027
• New rights on guaranteed hours, reasonable shift notice, and compensation for cancelled or moved shifts for zero hours and low hours arrangements, including related measures for agency workers. Workers on zero-hours and low-hours contracts will get the right to guaranteed working hours, if they want them.
The four changes most likely to move your numbersStatutory Sick Pay becomes day one and wider eligibility
From 6 April 2026, SSP is payable from day one (currently day 4) and the lower earnings limit test is removed, bringing more lower paid and part time workers into scope. SSP is also set as the lower of a weekly flat rate and 80% of normal weekly earnings
What this changes in practice:
• More short, stop start absences become payable
• Eligibility widens, so the same absence rate can cost more
What to do in financial terms:
• Track absence properly (days lost, patterns, departments)
• Model a realistic uplift and decide where it sits in budgets: direct costs, payroll, overhead, or contingency
Collective redundancy penalties increase sharply
From 6 April 2026, the maximum protective award for failing to consult properly in collective redundancy doubles from 90 days’ pay to 180 days’ pay per affected employee.
What this changes:
• Process risk becomes a material financial risk
• Poor consultation and documentation can become expensive quickly
• Lenders and buyers will focus harder on governance and people risk
What to do in financial terms:
• If a restructure is possible in the next 12 to 24 months, plan earlier
• Build a restructure risk cost line into scenario planning, not just the cost saving line
Zero-hours and low-hours contracts changes
Workers on zero-hours and low-hours contracts will get the right to guaranteed working hours, if they want them. This will happen in 2027.
What this changes:
• Changes to zero-hours contracts will likely increase employer costs due to requirements for guaranteed hours, compensation for cancelled shifts, and mandatory notice periods.
• Employers must offer contracts reflecting actual hours worked and pay for short-notice shift cancellations, reducing operational flexibility.
• Employers will be required to offer workers on zero- or low-hours contracts a guaranteed number of hours if they work regular patterns over a reference period (expected to be 12 weeks).
What to do in financial terms:
• Model a realistic uplift from 2027 and decide where it sits in budgets
Unfair dismissal risk increases from January 2027
From 1 January 2027, unfair dismissal protection starts after 6 months, the compensatory award cap is removed, and dismiss and rehire on worse terms is generally automatically unfair.
What this changes:
• The low risk window for new hires is shorter
• Senior exits can carry bigger downside if handled poorly
• Informal processes become risky
What to do (subject to taking HR advice):
• Tighten recruitment and probation plans, consider changes to terms and conditions
A simple board framework to bring this into planningStep 1: Map your workforce and your exposure
Split headcount and labour spend into:
• Permanent full time and part time
• Zero hours and low hours
• Agency and contractors
• Critical roles and key person risk
For each group, ask:
• How flexible is this cost today?
• What are likely extra costs to budget for?
• What happens to delivery and revenue if this group is disrupted?
Step 2: Build scenarios in the numbers
You do not need perfect forecasts but start to build the extra costs into your budgets and financial plans.
Examples:
• SSP scenario: what does a small uplift in sickness absence cost at today’s payroll, plus cover cost?
• Flexibility scenario: if more hours become effectively guaranteed, what happens to breakeven point and margins in a quiet quarter?
Step 3: Take proper legal and HR advice
It is so important to take legal and HR advice in relation to the new legislation and any proposed changes you wish to make.
How can Oldfield help you?
Oldfield helps directors stay in control month to month with clearer reporting, plain English insight, and practical actions. The goal is fewer surprises and earlier decisions, based on numbers you can rely on.
We work with business owners day in, day out on management reporting, financial advisory, and tax planning. We take the pressure off owners and support wider finance teams, so you get clearer numbers and fewer surprises, and can run the business rather than the business running you.
If you want to see how we can help you, contact us or book a free 30 minute review below.
Please note: This article is for general information purposes only and does not constitute legal advice or a replacement for HR or legal counsel where specialist advice is required. Advice and legislation are subject to change, and their application depends on your individual circumstances. We recommend seeking advice from a suitably qualified adviser. No responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.
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