UK employment law is now firmly in a period of major reform. With the Employment Rights Bill (ERB) moving through Parliament and key statutory changes already in force, this represents the most significant reshaping of worker rights in a generation.
Alongside measures introduced following the Autumn Budget, employers are already feeling the impact across pay, family leave, pensions, flexible working and workforce planning. For SMEs in particular, the pace and scale of change makes proactive compliance essential.
Key Employment Law Changes Already in Force
A number of important statutory employment law changes are now firmly in force, and employers are already expected to be operating within the new framework. These updates affect pay calculations, tribunal risk and family-related entitlements, making it essential that payroll systems, contracts and HR policies have been updated and are being applied correctly.
Pay and Compensation:
From April 2025, important increases took effect:
- The weekly cap for calculating a week’s pay is now £719.
- The maximum compensatory award for unfair dismissal is £118,223.
- Discrimination claims continue to rise in value, with Vento bands reaching up to £60,700 for upper-tier injury-to-feelings awards.
These increases mean tribunal claims now carry significantly higher financial risk.
Family-friendly rights:
The Neonatal Care (Leave and Pay) Act 2023 is now in force. This gives parents up to 12 weeks of additional paid leave where babies require hospital care in their first 28 days of life.
Statutory maternity, paternity, adoption, shared parental and bereavement pay rates also increased in April 2025. Employers must ensure payroll systems, handbooks and HR software remain up to date.
Budget-Linked Changes Affecting SMEs
While some Budget measures take effect further down the line, several decisions made in the Autumn Budget are already influencing staffing costs, employee expectations and long-term workforce planning. SMEs in particular need to understand how these measures may affect remuneration strategies, pension structures and recruitment decisions over the coming years.
- Salary sacrifice pension NI relief cap: from April 2029, only £2,000 per year can be sacrificed without NICs.
- Income tax and NIC thresholds remain frozen until 2031, placing sustained pressure on take-home pay and wage expectations.
- Apprenticeship and youth employment incentives continue to provide cost-effective recruitment and training opportunities for SMEs.
Practical tip: Review payroll, benefits and workforce planning now to understand longer-term cost implications.
The Employment Rights Bill: What’s Changing?
The Employment Rights Bill represents the most far-reaching reform of UK employment law in decades. Rather than a single “go-live” date, its provisions are being introduced in stages, meaning that employers must now plan for an evolving compliance landscape rather than a one-off update exercise.
Key reforms include:
- Day-one rights for parental leave
- Removal of qualifying periods for certain rights
- Guaranteed minimum hours for zero-hours and agency workers
- Stronger collective redundancy protections
- Enhanced protections for those taking part in industrial action
These measures will significantly reshape employment contracts, policies and workforce structures across many sectors.
Practical tip: Begin reviewing contracts and HR policies now to avoid rushed and reactive compliance later.
Implementation Timeline
Because the Employment Rights Bill is being implemented gradually, it is vital that employers understand not only what is changing, but when those changes are expected to take effect. The timeline below summarises the key milestones currently anticipated.
- April 2025: Statutory pay and compensation increases; Neonatal Care leave introduced
- Late 2025 – 2026: Employment Rights Bill provisions phased in
- From April 2026:
- Day-one parental leave rights
- Removal of SSP waiting days
- Increased protective awards for collective redundancies
- 2027 and beyond (subject to final regulations):
- Guaranteed minimum hours for zero-hours workers
- Removal of the two-year qualifying period for unfair dismissal
Practical tip: Map out your HR compliance roadmap now so your policies, contracts and payroll systems are ready well before deadlines.
Flexible & Hybrid Working
Flexible and hybrid working arrangements continue to evolve from a workplace benefit into a core compliance issue. With expanding statutory rights and heightened employee awareness, SMEs must ensure that requests are handled consistently and in line with both legal obligations and internal policies.
Informal arrangements can quickly lead to grievances or tribunal claims if similar requests are treated differently across teams. Clear policies, documented agreements and trained managers are essential.
Practical tip: Formalise all flexible and hybrid working arrangements and ensure line managers understand how to deal with requests lawfully and consistently.
Preparing Your Business
The pace and scale of these reforms mean that reactive compliance is no longer sufficient. Employers who fail to prepare risk increased tribunal exposure, employee dissatisfaction and reputational damage, while those who plan ahead are better placed to retain staff and manage costs.
Employers should:
- Review and update contracts, handbooks and HR policies
- Audit payroll and benefits in light of statutory and Budget changes
- Train managers to handle leave, pay and flexible working requests consistently
- Use apprenticeship and youth incentives to build skills cost-effectively
Even small compliance gaps can now carry serious financial consequences.
Looking Ahead
Employment law reform will continue well beyond 2026. Understanding what is changing and embedding compliant processes now will be critical for SMEs seeking to operate confidently, attract talent and avoid costly disputes.
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Our Employment Law Team supports SMEs with contract reviews, policy audits and ongoing compliance subscriptions, giving you clarity, confidence and practical protection.
For tailored advice on the Employment Rights Bill, Budget-linked reforms or any 2025–2026 employment law changes, contact us today.