Employment Rights Act: legal expert highlights what the new reforms and £1bn cost really mean for employers

Employers, including owner-managers of advice firms, face rising costs and operational challenges under the Government’s latest employment reforms. In this analysis for IFA Magazine, Gita Patel, Senior Associate Solicitor in the Employment Team at SA Law, explains the legal, financial and practical implications of this and how firms can prepare now.

Employers are understandably concerned about rising costs and the prospect of slower hiring as a result of the Government’s latest employment reforms, and those concerns are not misplaced. Extending entitlements and protections will carry administrative and financial burdens, including increased payroll costs, more complex workforce planning, and greater management time dedicated to compliance. However, the reforms are aimed at improving work-life balance and financial security for working families, and many employers may ultimately benefit from improved retention, engagement, and productivity. Being prepared for these changes will minimise operational disruption, manage increased legal risk and ensure compliance with new regulations.

Earlier unfair dismissal protection: a shorter runway for employers

A crucial change is the reduction of the qualifying period for ordinary unfair dismissal to six months with effect from 1 January 2027. This will bring a significantly larger cohort (estimated to be an additional 6.3 million employees) into scope of unfair dismissal protection much earlier in their employment. For employees, it provides earlier job security and may deter arbitrary or poorly managed exits. For employers, it tightens the window in which dismissals can occur without the need to show a ‘fair reason’ or follow a strict formal process. Employers will need to create a more structured probation management and implement earlier performance interventions to ensure fair process from the outset.

Workplace culture is also likely to shift. Earlier access to protection may encourage employees to raise issues sooner and to expect more transparent decision-making. ACAS is likely to receive more referrals, and the Employment Tribunal system may face greater caseload pressure. While some disputes may resolve in pre-claim conciliation, employers should expect more activity in early-stage grievances and challenges. Robust record-keeping and consistent application of process will be critical defences.

Day-one sick pay and evolving family leave rights

Statutory Sick Pay (SSP) will becoming payable from day one of illness providing improved financial stability for workers but will add direct cost and require tighter absence reporting and monitoring. Employers should revisit triggers under attendance management frameworks and ensure prompt fit note processes and data accuracy in payroll. Anticipated changes to paternity rights, including greater flexibility in when and how leave is taken, will support work-life balance but may complicate scheduling, cover arrangements, and pay calculations. Managers will need clear guidance on approving and planning for intermittent or restructured leave patterns to avoid inconsistency and discrimination risk.

Zero-hours reforms are intended to reduce insecurity and address one-sided flexibility. Employers will need to improve forecasting, provide clearer rostering rules, and budget allowances for increased guaranteed hours or compensation mechanisms.

How employers should prepare

To reduce the risk of unfair dismissal claims where processes are not followed and unlawful deduction, discrimination, or detriment claims due to missteps in applying revised SSP, paternity, or zero-hours provisions, employers should firstly update policies and contractual documentation to reflect changes including day-one SSP and revised paternity provisions using clear, accessible language and avoiding ambiguity that could be construed against it.

Secondly, audit HR processes, including recruitment, probation, performance management, sickness absence, family leave, and grievance/disciplinary procedures, to ensure they meet the fairness standards that will apply earlier in the employment relationship.

Thirdly, train line managers and HR teams. Early decision-making will carry greater legal consequence, so managers must understand lawful selection, documentation standards, reasonable adjustments, absence triggers, and the use of informal resolution.

Fourth, budget for increased direct and indirect costs, including payroll, agency cover, training time, and system changes. Scenario modelling against forecast absence and leave patterns will help to protect service levels.

Fifth, maintain compliance through updated payroll configuration and periodic internal audits. Employers should also refresh communications with employees so that entitlements and processes are well understood, which reduces disputes and supports consistent practice.

Sixth, employers should review employment practices liability insurance to confirm scope, limits, excesses, and notification requirements, and consider whether increased defence and settlement costs are adequately covered.

Lastly, employers should track updates to the Employment Rights Act 2025 closely and avoid premature commitments until the final text is settled, while preparing contingencies for likely outcomes and to reduce future litigation risk. Employers that respond with good processes, capable managers, and data-driven workforce planning will be best placed to absorb cost, minimise disputes, and capture the benefits of a more engaged and stable workforce. Early, structured preparation will pay for itself when the changes take effect.

About Gita Patel

Gita is a Senior Associate Solicitor in the Employment team at SA Law, advising businesses and senior employees on a broad range of contentious and non-contentious employment law matters. Her expertise includes discrimination, whistleblowing, maternity and family leave, unfair dismissal and redundancy, as well as drafting and advising on contracts, policies and procedures.

She has significant experience representing clients in complex Employment Tribunal litigation and regularly advises on and negotiates severance and exit packages. Gita acts for clients across a wide range of sectors in the UK and internationally and is a regular commentator on employment law issues for the media.