For businesses employing between one and 250 people, the Employment Rights Act 2025 represents one of the most significant changes to employment law for some time.
The reforms are being introduced gradually, rather than on one single date. Some measures are already in force, while further important changes arrive in October 2026, January 2027 and throughout 2027.
For SME owners, the challenge is therefore not simply knowing that employment law is changing. It is making sure contracts, policies and management procedures keep pace with those changes.
What Has Already Changed?
Several measures took effect during 2026.
Changes introduced in April included Statutory Sick Pay becoming payable from the first day of absence, removal of the previous lower earnings threshold for SSP, and day-one entitlement to Paternity Leave and Unpaid Parental Leave. The Fair Work Agency has also been established as part of the government’s wider enforcement reforms.
Employers should therefore make sure their payroll systems, absence procedures and employee handbooks already reflect these rules.
For a smaller employer without a dedicated HR department, this is particularly important. Historic policies copied forward from previous years may no longer accurately describe employees’ rights.
Employment Tribunal Claims – From October 2026
From 1 October 2026, the general time limit for employees bringing claims to an Employment Tribunal increases from three months to six months.
For employers, this means employment disputes may remain live for considerably longer.
Good record keeping therefore becomes even more important.
Businesses should retain clear documentation around disciplinary matters, grievances, performance management, absence and dismissals. Managers should also be encouraged to document significant conversations rather than relying on informal recollections months later.
For an SME with only a handful of employees, formal procedures can sometimes feel unnecessarily corporate. However, when something goes wrong, good documentation can be extremely valuable.
Workplace Harassment – Greater Responsibility for Employers
Further changes take effect from 30 October 2026.
Employers will be required to take “all reasonable steps” to prevent sexual harassment of employees. There will also be obligations concerning harassment by third parties, which could include customers, suppliers or other people employees encounter through their work.
This potentially affects businesses of every size. Employers simply having an anti-harassment policy stored in an employee handbook may no longer find this is sufficient.
Employers should consider whether risks have been identified, staff understand expected behaviour, managers know how to respond to complaints, and appropriate training has been provided to ensure the correct processes are followed and documented.
Businesses dealing regularly with customers or members of the public may also need to consider the risks employees face from third parties.
Unfair Dismissal Changes – January 2027
One of the most important changes for SME employers arrives on 1 January 2027.
The qualifying period before employees gain ordinary unfair-dismissal protection will reduce from two years to six months. The government has specifically advised employers to begin preparing now.
This could have a significant practical impact on smaller businesses.
Historically, some employers have relied upon the two-year qualifying period when assessing whether a new employee is suitable for a role. From January, considerably more employees will gain protection much earlier in their employment.
The change makes the first six months particularly important.
Employers should consider whether they have:
- clear employment contracts and job descriptions;
- structured probationary periods;
- regular performance reviews;
- documented concerns and agreed improvements; and
- appropriate disciplinary and dismissal procedures.
Managers/ Owners should address performance problems immediately rather than allowing them to continue until somebody has been employed for several months.
What Should SMEs Do Now?
Businesses do not need to become employment-law specialists, but they should review their internal processes before the next stages take effect.
A practical starting point would be to review:
Employment contracts and staff handbooks to ensure they reflect current rights.
- Probation procedures, particularly with the six-month unfair-dismissal qualifying period approaching.
- Performance management, making sure concerns and discussions are properly documented.
- Harassment policies and training, including risks involving customers and other third parties.
- Payroll and absence procedures, ensuring the 2026 Statutory Sick Pay changes have already been implemented.
Businesses with 50, 100 or 250 employees may have more formal HR structures, but the principles are equally important for businesses employing only one or two people.
In fact, smaller businesses can sometimes be more exposed because employment decisions are often handled informally by the owner rather than through a dedicated HR team.
Preparation Rather Than Panic
The Employment Rights Act does not require SME owners to redesign their businesses overnight. However, it does mean employment procedures deserve attention.
Good contracts, clear probation periods, documented performance discussions and sensible workplace policies are not simply about legal compliance. They can also help businesses manage people more consistently and deal with problems before they become disputes.
With further reforms due throughout 2027, employment compliance is likely to remain an important issue for businesses of every size.
Our thoughts
Many small businesses have never taken HR particularly seriously. Experience has shown employers have often not provided even the most basic of contracts, let alone handbooks or having policies or procedures in place. The days of being reactive rather than proactive are coming to an end. There is help for them, and I recommend all small businesses to pay for membership to the Federation of Small Businesses (FSB), where the annual fees currently from £195 per year, gives them access to so many resources which include:
- Legal Documents Library: Downloadable templates for employment contracts, client agreements, policies, and invoices checked by legal experts.
- 24/7 Advice Line: Round-the-clock telephone access to legal and employment specialists.
This article is intended as general information only and should be interpreted as specific advice. Individual deadlines and requirements depend on your circumstances, so current guidance should always be checked before action is taken. If you need help, please do get in touch.
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