Employment Rights Act 2025 Explained for Small Businesses

The Employment Rights Act 2025 is the biggest change to UK employment law in a generation. For large employers with HR departments, it is a project. For small business owners managing staff without legal support, it is a risk that most are not yet prepared for. This guide explains the key changes, what they mean in practice and what you need to do before January 2027.

What the Employment Rights Act 2025 is

The Employment Rights Act 2025 is a wide-ranging piece of legislation passed by the UK government that amends and extends existing employment law across a range of areas. It covers unfair dismissal, flexible working, zero hours contracts, trade union rights and more.

Not all of it is relevant to every small employer. But one change affects every single business in the UK that employs staff, regardless of size, sector or turnover.

The change that affects every employer: the qualifying period

Currently, an employee needs two years of continuous employment before they can bring an unfair dismissal claim at an employment tribunal. This two-year qualifying period has been a significant practical protection for employers — particularly small businesses making early hiring decisions.

From January 2027, that qualifying period reduces to six months.

This is not a minor adjustment. It is a structural shift in the risk profile of every employment relationship in the UK. An employee you hire today will have full unfair dismissal rights by July 2027 at the latest.

What this means in practice

Until now, many small employers have operated on the assumption that the first two years of employment are relatively low-risk. A poor hire could be exited during probation or within the first year with limited legal exposure, provided notice was paid correctly.

From January 2027, that window closes to six months. After that point, every dismissal — for conduct, performance, redundancy or any other reason — must be based on a fair reason and follow a fair process. The average unfair dismissal award at tribunal is £14,000. Legal costs defending a claim, even a successful defence, commonly exceed that figure.

The change does not make it harder to dismiss employees. It makes it essential to dismiss them correctly.

Other key changes in the Act

Flexible working. The Act strengthens the right to request flexible working, which became a day-one right in 2024. Employers must now provide more detailed reasons for refusing a request and the grounds for refusal are more tightly defined.

Zero hours contracts. Workers on zero hours contracts will gain the right to request a guaranteed hours contract that reflects their regular working pattern after a qualifying period. The exact commencement date for this provision is subject to secondary legislation but is expected to follow in 2026 or 2027. If your business relies on zero hours workers, you need to understand this change and begin reviewing your arrangements now.

Statutory sick pay. The Act removes the waiting period for SSP, meaning SSP becomes payable from day one of sickness absence rather than day four. It also extends SSP eligibility to lower-paid workers who previously fell below the lower earnings threshold. This increases the cost of sickness absence for small employers and makes absence management more important.

Trade union rights. The Act extends trade union access rights and simplifies the process for recognition ballots. For most small businesses, this is less immediately relevant than the dismissal and SSP changes.

Protection from dismissal during the early employment period. The Act introduces new protections specifically for the period between six months and two years of employment — the gap created by the qualifying period reduction. The government has indicated that some form of lighter-touch process may apply in this window, but the detail is subject to secondary legislation and is not yet confirmed. Do not assume a simpler process will apply — plan for the full unfair dismissal framework from month seven.

What you need to do before January 2027

Review your employment contracts. Any contract that references the two-year qualifying period or that implies employees have limited rights in their first two years, needs updating. Every new contract issued from now should be drafted on the basis of a six-month qualifying period.

Review your disciplinary and capability procedures. Your staff handbook and disciplinary procedure should reflect the new reality. The process you follow for an employee with seven months of service needs to be the same as the process you follow for an employee with seven years of service.

Start managing performance and conduct from day one. The informal verbal warning, the documented conversation, the mid-probation review — these matter now in a way they did not before. Your early-stage management records are your evidence of a fair process if a claim is made.

Review your zero hours arrangements. If you use zero hours workers regularly, begin assessing whether any of them have a regular pattern of work that could give rise to a guaranteed hours request.

Do not wait until January 2027. Employees hired today will reach six months of service in October 2026 — before the qualifying period change takes effect. But employees hired from July 2026 onwards will hit six months after the January 2027 commencement date. The time to prepare is now.

What changes from January 2027

How Birchlow helps

Birchlow is built around a single principle: your employment documents are never out of date. When the January 2027 changes take effect, your contracts, handbooks and disciplinary procedures update automatically — confirmed by a 7am notification. You do not need to track legislation, instruct a solicitor or remember to act. Birchlow does it for you.