Employment Rights Act 2025: What Small Businesses Need to Do Before January 2027

The Employment Rights Act 2025 is the biggest change to UK employment law in a generation, and it's arriving in stages. Some changes are already in force, more land this month, and the one that will affect small businesses most starts on 1 January 2027: staff will be able to claim unfair dismissal after just six months' service.

The changes apply to every employer in England, Scotland and Wales, whatever its size. If you run a small business and don't have an HR team, here is what's changing, when, and what to do about it, in plain English.

The key dates at a glance

• Already in force (April 2026). Statutory Sick Pay is now payable from the first day of sickness, and lower earners now qualify for it. Paternity leave and unpaid parental leave now apply from the first day of employment. Employers must keep records of holiday and holiday pay. A new government body, the Fair Work Agency, now enforces employment rights.
• 1 October 2026. Employees now have six months instead of three to bring many employment tribunal claims.
• 30 October 2026. Employers must take “all reasonable steps” to prevent sexual harassment at work, and can be liable when staff are harassed by third parties such as customers, clients or contractors.
• 1 January 2027. The qualifying period for unfair dismissal falls from two years to six months, and the cap on unfair dismissal compensation is removed. Employers must also tell workers about their right to join a trade union, and new restrictions on “fire and rehire” are expected later that month.
• Later in 2027. Further changes are planned, including guaranteed hours for workers on zero or low hours contracts, a new flexible working framework, bereavement leave, and stronger protection for parents returning to work. The details are still being confirmed.

The big one: unfair dismissal after six months

At the moment, most employees need two years' service before they can claim unfair dismissal. From 1 January 2027, that drops to six months. It applies to dismissals on or after that date, so anyone who has already worked for you for six months by then will be protected straight away. That includes anyone who joined on or before 1 July 2026.

The cap on compensation is also being removed. Until now, unfair dismissal awards were capped at a year's pay or the statutory limit, whichever was lower. From January there is no upper limit, so getting a dismissal wrong could cost a small business considerably more.

This doesn't mean you can't let someone go. It means that after six months you need a fair reason and a fair process, and you need to be able to show it. In practice, the first six months of employment are now your window to decide whether someone is right for the role.

What to do now. Start with your probation periods: make sure they end comfortably within six months, and that your contracts say how probation can be extended. Then make probation real, with clear expectations on day one, regular review meetings and a written note of what was discussed. Deal with performance or conduct problems early, because issues left to drift become much harder to resolve once someone passes six months. And make sure your disciplinary, capability and grievance procedures are current, and that your managers know how to use them. Our guide to running probation periods from 2027 goes into more detail.

Preventing harassment: from 30 October 2026

Since October 2024, employers have had a legal duty to take reasonable steps to prevent sexual harassment. From 30 October 2026, that becomes “all reasonable steps”, which is a higher bar. Employers can also be held responsible when employees are harassed by third parties, such as customers, clients, suppliers or members of the public. If an employer hasn't met the duty, a tribunal can increase compensation in sexual harassment cases by up to 25%.

What to do now. Update your harassment policy so it covers customers, clients and other third parties, and carry out a simple risk assessment: where could harassment happen in your business, whether at client sites, evening events or in roles where staff deal with customers? Give staff a clear and safe way to raise concerns, act on every complaint, and train managers and staff, keeping a record that you did. Our guide to the new harassment duty explains each step.

Longer to bring claims

Because the time limit for many tribunal claims has doubled to six months, a problem can come back to you later than it used to. Keep good records of decisions, meetings and the reasons behind them, and keep them for longer.

Changes already in force: have you caught up?

If you haven't yet reviewed the April 2026 changes, do it now. Check that your sickness absence policy and payroll reflect Statutory Sick Pay from day one. Make sure your family leave policies show that paternity and parental leave now apply from the first day. And check that you're keeping proper holiday records.

Your checklist before 1 January 2027

• Review employment contracts and make sure probation clauses still work once staff can claim unfair dismissal after six months
• Update your employee handbook and policies: sickness, family leave, harassment, disciplinary and grievance
• List everyone who will have six months' service on 1 January 2027
• Resolve any ongoing performance or conduct concerns fairly and promptly
• Carry out a harassment risk assessment and update your policy to cover third parties
• Train managers on probation reviews, fair process and handling complaints
• Check how you record holidays, absence and management decisions
• Review any plans to change staff terms and conditions in the light of the new rules on fire and rehire

Free download. Want the key dates and every step on four pages, with a box to tick for each one? Get our free Employment Rights Act checklist.

How Floreo HR can help

If this feels like a lot, you don't have to work through it alone. Our free HR Health Check is a good place to start. We'll look at your contracts, policies and processes, highlight any risks or gaps, and give you clear recommendations on what to update before January. There's no pressure and no sales pitch.

We support businesses across Hull, East Yorkshire, York, Leeds, Harrogate and Sheffield with retained HR support, or help as and when you need it. Call 01482 765481 or get in touch.

This article is general guidance based on the government's published timetable as at October 2026. It isn't legal advice. Some dates and details are still being confirmed through government consultation, so check the latest position on GOV.UK and Acas, or speak to us about your circumstances.