By the HR experts at MJV Consulting – With over 40 years combined experience supporting small and medium-sized businesses across Sussex, Surrey, and London. Since 2016, we’ve supported small businesses in Sussex, Surrey and London with forward thinking HR strategies designed to support your growth.
Introduction
The Employment Rights Act 2025 rewrites the rules on sick pay, parental leave, unfair dismissal and more – and the changes landing across 2026 will touch every SME employer. Here’s what’s changing, when it takes effect, and what you actually need to do about it.
You run a 20-person accountancy practice in Guildford. On the same Monday morning, three things land on your desk: a team member calls in sick and expects to be paid from day one, a new starter who joined last week asks about paternity leave, and your office manager forwards an article about the unfair dismissal cap being removed and asks whether your contracts are up to date.
A year ago, you’d have had a clear answer for each of these. Today, you’re not so sure – and you’re not alone. This is the reality we’re hearing from business owners across Surrey and London right now. Employment law in the UK is changing faster than most SME owners can keep up with, and the window to prepare is narrower than it looks.
The Employment Rights Act 2025 received Royal Assent on 18 December 2025, and its provisions are being introduced in phases throughout 2026 and into 2027. Some changes are already in force. Others land in April and October this year. A few of the biggest reforms – including a dramatically reduced unfair dismissal qualifying period and the removal of the compensation cap – arrive in January 2027, but the preparation needs to start now.
This guide breaks down the key employment law updates for 2026, explains what HR compliance for SMEs looks like in practice, and gives you a clear action plan so your business stays on the right side of the law – without the jargon.
What is the Employment Rights Act 2025 – and why should SMEs care?
The Employment Rights Act 2025 is a single piece of legislation that introduces over 28 reforms to UK employment law. It amends and builds on existing laws including the Employment Rights Act 1996 and the Equality Act 2010, covering everything from sick pay and parental leave to unfair dismissal, harassment, and trade union rights.
For larger organisations with dedicated HR departments and in-house legal teams, absorbing these changes is a project. For the kind of business we work with every day include a growing marketing agency in Kingston, a dental practice in Reigate, an independent veterinary group with sites across the south-east – it’s a different challenge entirely. Most SME owners don’t have the time or resource to monitor every consultation paper and statutory instrument coming out of Westminster. But the obligations apply just the same.
The financial risk of getting this wrong has gone up significantly. Until now, the statutory cap on unfair dismissal compensation sat at around £118,000. From January 2027, that cap is removed entirely, and compensation will be based on actual financial loss with no upper limit. At the same time, the qualifying period drops from two years to six months. For an SME in Surrey or London – where salaries are higher and the talent market is fiercely competitive – a single badly handled dismissal could carry a cost that would have been unthinkable two years ago.
Getting your policies, contracts and processes right now isn’t just good practice – it’s basic risk management. And in our experience, the businesses that act early spend far less time and money than those that wait until something goes wrong.
What’s already changed?
Before we look ahead, it’s worth checking you’re up to date on what’s already happened. Several changes took effect between December 2025 and February 2026, primarily around trade union and industrial action rules: minimum service level requirements during strikes were repealed, dismissal for taking industrial action became automatically unfair, and ballot and notice rules were simplified.
If your business is unionised or operates in a sector with significant union activity, these changes should already be reflected in your policies. For most of the SMEs we support across Surrey and London, these particular reforms won’t have a direct day-to-day impact – so if they’re not relevant to you, the section below is where your attention should be.
What changes in April 2026?
April 2026 is the date that most SME employers need to circle. Several significant changes take effect from 6 April, and they’ll require updates to your contracts, policies and payroll. Here’s what’s coming – and what to do about each one.
Statutory Sick Pay from day one
From 6 April 2026, Statutory Sick Pay becomes payable from the first day of sickness absence. The three-day waiting period is gone, and the lower earnings limit that previously excluded some lower-paid workers has been removed. In practice, every employee on your payroll will be entitled to SSP from day one of incapacity, regardless of how many hours they work or what they earn.
For SMEs in hospitality, retail, or any sector with higher short-term absence rates, this is the change most likely to be felt day-to-day. The approximate cost of SSP per employee per day is around £24 – manageable in isolation, but it adds up quickly if absence isn’t being tracked and managed properly.
What to do: Review your sickness absence policy and remove any reference to waiting days. Check your payroll system handles the new calculation correctly. Make sure line managers understand how to conduct return-to-work conversations consistently – that’s where most absence issues are either resolved or allowed to drift.
Day one rights for paternity and parental leave
Paternity leave and unpaid parental leave both become day one rights from 6 April 2026. Previously, employees needed 26 weeks’ service for paternity leave and 12 months for parental leave. That qualifying period is gone. A new entitlement, Bereaved Partners’ Paternity Leave, also takes effect, providing up to 52 weeks of leave where a child’s mother or primary adopter dies within the first year.
What to do: Update your family leave policies and employee handbook. Remove references to qualifying periods that no longer apply, and brief managers so they can handle requests correctly from new starters. If you run a small team, think about how you’d manage cover at short notice – cross-training and documented handover processes are worth investing in now, before you need them.
Whistleblowing protections extended to sexual harassment
From 6 April 2026, disclosures about sexual harassment will be treated as qualifying disclosures under whistleblowing law. Employees who report sexual harassment will receive protection from detriment and unfair dismissal, in the same way as other whistleblowers.
What to do: Review your whistleblowing policy to ensure it explicitly covers sexual harassment. Update your harassment and dignity at work policy at the same time, and check that your reporting channels are clearly communicated to all staff. In our experience, many SME whistleblowing policies haven’t been reviewed since they were first written – this is a good prompt to fix that.
Collective redundancy protective award doubles
The maximum protective award for failing to properly consult during a collective redundancy doubles from 90 days’ pay to 180 days’ pay from 6 April 2026. Even if redundancies aren’t on your immediate horizon, restructures and cost-reduction exercises can escalate quickly. The financial risk of getting consultation wrong has just doubled.
What to do: If you’re considering any form of restructure, take advice early on thresholds, timelines and documentation. Don’t leave it until the process is already underway – by then, the consultation clock is already ticking.
Other April 2026 changes to note
From 1 April 2026, the National Minimum Wage rises to £12.71 per hour for workers aged 21 and over, with increases for younger workers and apprentices. For many SMEs in Surrey and London, where pay rates often sit above the statutory minimum, the bigger pressure is the ripple effect through your pay structure – when the floor rises, the gap between your new starters and your experienced team narrows, and that can create retention issues if it’s not managed. (If retention is already a concern, our recent article on the real cost of losing a good employee explains why getting this right matters even more.)
The Fair Work Agency also launches on 7 April 2026 as a new government enforcement body with powers to inspect premises, issue enforcement notices, and pursue civil proceedings against employers who fail to meet their obligations on minimum wage, holiday pay and SSP. Voluntary action plans around gender pay gaps and menopause support are introduced from 6 April, becoming mandatory in 2027.
What’s coming later in 2026 and into 2027?
The April changes are the most immediate, but the reforms arriving in October 2026 and January 2027 are the ones that will have the biggest long-term impact on how SMEs manage their people. Here’s what to expect – and what to start preparing now.
October 2026
- Sexual harassment duties strengthened: Employers will be required to take “all reasonable steps” to prevent harassment (up from “reasonable steps”). A new duty to prevent third-party harassment also takes effect. If a tribunal finds you haven’t taken reasonable preventative action, compensation can be increased by up to 25%.
- Trade union access and recognition: Employers will be required to inform workers of their right to join a trade union, with updated rules on workplace access for union representatives.
- Employment tribunal time limits extended: The time limit for bringing a claim extends from three months to six months, giving employees significantly longer to bring proceedings.
What to do now: Conduct a harassment risk assessment and document everything – your policy, training records, reporting routes and any steps you’ve taken to address known risks. Review your record-keeping and document retention practices, particularly around any disciplinary, grievance or performance conversations. With longer tribunal time limits, the window in which a former employee can bring a claim widens considerably.
January 2027
- Unfair dismissal qualifying period reduced to six months: This is arguably the single biggest change for SMEs. The qualifying period drops from two years to six months, and the statutory cap on compensation is removed. A poorly managed dismissal six months into someone’s employment could now result in an uncapped tribunal award.
- Fire and rehire restrictions: Dismissing and re-engaging employees on worse terms will become automatically unfair for certain core contractual terms.
- Zero-hours and guaranteed hours: Workers on zero-hours or low-hours contracts will gain the right to guaranteed working hours reflecting their regular pattern.
- Enhanced pregnancy and maternity protections: Stronger protections against dismissal during pregnancy, maternity leave and the return-to-work period.
What to do now: This is the change we’re talking to clients about most. The combination of a shorter qualifying period and no compensation cap means that your recruitment, onboarding, probation and performance management processes all need to be airtight. Invest in structured probation reviews with documented check-ins, clear performance expectations from day one, and manager training on how to handle underperformance properly. The businesses that build these habits now will be far better protected when January 2027 arrives.
Employment law changes timeline: at a glance
Save this table or share it with your management team. It summarises the key dates and changes that SME employers across Surrey and London need to prepare for.
| Date | Change | Action required |
| 6 April 2026 | SSP from day one, no earnings threshold | Update sickness policy, check payroll |
| 6 April 2026 | Day one paternity and parental leave | Update family leave policies and handbook |
| 6 April 2026 | Whistleblowing covers sexual harassment | Review whistleblowing and harassment policies |
| 6 April 2026 | Collective redundancy award doubles | Review redundancy procedures, take advice early |
| 1 April 2026 | National Minimum Wage rises to £12.71/hr | Check payroll, review pay structure compression |
| 7 April 2026 | Fair Work Agency launches | Ensure NMW, holiday pay and SSP compliance |
| October 2026 | Strengthened harassment prevention duty | Risk assessment, training, document everything |
| October 2026 | Extended tribunal time limits (6 months) | Review documentation and record retention |
| January 2027 | Unfair dismissal: 6 months, no comp cap | Strengthen probation, performance, documentation |
| January 2027 | Fire and rehire restrictions | Review contracts and variation processes |
| 2027 | Zero-hours guaranteed hours | Audit casual and zero-hours arrangements |
How can SMEs stay compliant with employment law?
The volume of change can feel overwhelming when you’re running a business at the same time. But the good news is that most of these reforms don’t require you to reinvent the wheel. They require you to tighten up what you already have – and to deal with the gaps you’ve probably been meaning to get around to.
Here’s a practical HR compliance checklist for small businesses in the UK that covers the essentials:
- Audit your contracts and policies. Do your employment contracts reflect current legislation? Do your policies still reference qualifying periods or thresholds that no longer apply? If your handbook hasn’t been reviewed in the last 12 months, start there. In our experience, this is where most SMEs find the biggest gaps – not because they’ve done anything wrong, but because the law has moved on and the paperwork hasn’t kept pace.
- Update your sickness, family leave and whistleblowing policies. These are the areas with the most immediate changes. Get them right before 6 April 2026.
- Train your managers. Most compliance issues don’t happen in boardrooms – they happen in conversations. Your line managers need to understand the basics of the new rules, particularly around sick pay, parental leave, and how to handle performance concerns properly. A one-hour briefing now could save you thousands later.
- Strengthen your probation and performance processes. With the unfair dismissal qualifying period dropping to six months from January 2027, this is the change that will catch businesses out if they’re not ready. Invest in clear onboarding, structured probation reviews and documented performance conversations now – not in December.
- Conduct a harassment risk assessment. Ahead of the strengthened prevention duty in October 2026, document the steps you’re taking to prevent harassment. Include your policy, training records, reporting routes and any risk assessments. Remember: if a tribunal finds you haven’t taken reasonable preventative steps, compensation can be uplifted by up to 25%.
- Check your payroll. Make sure your systems are ready for the new SSP rules, the updated NMW rates, and the new statutory family pay rates (£194.32 per week from April 2026). Small errors can become expensive quickly under the Fair Work Agency enforcement regime.
- Get your record-keeping in order. The Fair Work Agency will have powers to inspect premises and require documentation. Holiday pay records, SSP calculations and absence data all need to be accurate and accessible. Using a centralised HR platform like Breathe makes this significantly easier to manage – and it’s one of the reasons we recommend it to the SMEs we work with.
What policies are legally required for small businesses?
There are three main policies that companies must have in place.
- Disciplinary and Dismissal Policy
- Grievance Policy
- Health & Safety Policy
However, in practice every SME employer should have clearly documented policies in place, both because elements are required by law and because they form your first line of defence in any dispute.
As a minimum, it is considered to be recommended best practice to have the following policies in place:
- Equal opportunities and anti-discrimination
- Bullying and Harassment
- Code of Conduct
- Sickness and leave of absence
- Flexible Working Policy
- Family leave (maternity, paternity, parental, adoption and bereavement)
- Internet and Email Policy
- Data protection and Privacy Policy
If any of these are missing from your employee handbook, or if they haven’t been updated to reflect the Employment Rights Act 2025 changes, that’s where to focus your attention first. We regularly carry out policy audits for our retained clients, and this is one of the most common areas where a small investment of time prevents a much larger problem later.
Why this matters for small businesses in Surrey and London
Surrey and London are home to thousands of SMEs operating across professional services, hospitality, retail, construction and the creative industries. Many employ between 5 and 50 people, rely on a mix of full-time, part-time and flexible workers, and don’t have a dedicated HR function.
That profile brings specific pressures. The south-east talent market is fiercely competitive, with many Surrey-based SMEs competing for the same people as London employers offering higher salaries and more structured benefits. The cost-of-living squeeze in the commuter belt means pay compression is already a live issue for many of our clients – and the NMW increase will sharpen it further. When you’re already working hard to attract and keep the right people, the last thing you need is a compliance gap that creates unnecessary risk.
We’ve been supporting SME owners across Surrey, Sussex and London through employment law changes for ten years now, and the pattern is always the same: the businesses that act early spend far less time and money than those that wait. A sickness policy that still references waiting days, a paternity leave clause that requires 26 weeks’ service, a disciplinary process that wouldn’t hold up if challenged at tribunal – each of these is a manageable fix, but only if you know they need fixing.
The businesses that will navigate this period best are the ones that treat it as a tidy-up moment rather than a crisis. Get your policies reviewed, make sure your managers understand the basics, and put a plan in place for the changes arriving later in the year. If you do that, you’ll be ahead of most of your competitors – and you’ll be protecting the business you’ve worked hard to build.
At MJV Consulting, we help SME owners across Surrey, Sussex and London stay on top of employment law so they can focus on running their business. With 10 years’ experience and Breathe Gold Partner status, we make the complex feel manageable – whether that’s a full policy review, a one-off compliance check, or retained HR support that keeps you covered all year round.
If you’re not sure whether your policies are ready for the changes ahead – or you’re worried about what a badly handled dismissal could cost your business under the new rules – start with a conversation. We’ll walk you through what applies to your business, what needs to happen next, and how to get it done without the stress.
Get in touch with our team today for a free, no-obligation conversation.
Frequently asked questions
What are the main employment law updates for 2026 in the UK?
The Employment Rights Act 2025 introduces phased changes throughout 2026 and into 2027. From April 2026, the key changes are day one SSP with no earnings threshold, day one paternity and parental leave, extended whistleblowing protections covering sexual harassment, and a doubled collective redundancy protective award. October 2026 strengthens the employer’s duty to prevent harassment and extends tribunal time limits to six months. January 2027 reduces the unfair dismissal qualifying period to six months and removes the compensation cap.
How can SMEs stay compliant with employment law?
Start by auditing your contracts, policies and employee handbook against the new requirements. Priorities include updating sickness, family leave and whistleblowing policies before April 2026, training line managers, strengthening probation and performance processes ahead of the January 2027 unfair dismissal changes, conducting a harassment risk assessment, and ensuring payroll and record-keeping are accurate and up to date.
What policies are legally required for small businesses?
It is recommended that every SME should have documented policies covering disciplinary and grievance procedures, equal opportunities, harassment, whistleblowing, health and safety, sickness absence, flexible working, family leave and data protection. These should be regularly reviewed against current legislation.
What is the Fair Work Agency and how does it affect small businesses?
The Fair Work Agency is a new government enforcement body launching on 7 April 2026. It consolidates enforcement functions covering minimum wage, statutory sick pay, holiday pay and labour exploitation into a single agency with powers to inspect business premises, require information, and pursue civil proceedings. SME employers should ensure payroll records, holiday pay calculations and statutory pay compliance are all in order ahead of its launch.
When does the unfair dismissal qualifying period change?
The qualifying period reduces from two years to six months from 1 January 2027, with no transitional provisions. The statutory cap on compensatory awards is also being removed, meaning compensation will be based on actual financial loss with no upper limit. SME employers should begin strengthening their recruitment, onboarding, probation and performance management processes now.
What does the removal of the unfair dismissal compensation cap mean for SMEs?
Previously, unfair dismissal compensation was capped at the lower of 12 months’ gross salary or approximately £118,000. From January 2027, that cap is removed. Compensation will be based on the employee’s actual financial loss, which for higher earners could be substantially more. This significantly increases the financial risk of poorly handled dismissals and makes robust documentation, fair process and manager training essential.
About MJV Consulting
MJV Consulting provides specialist HR support to Small Businesses and Independent Schools in Horsham, Crawley, Haywards Heath, Burgess Hill and Guildford. We offer retained HR services, compliance audits, policy development, and HR systems implementation, helping businesses manage their people effectively without the cost of full-time HR staff. Contact us via email www.mjvconsulting.co.uk or 01403 916727 to discuss how we can support your business growth.
If you’d like to discuss your HR challenges or explore how we can support your business, contact us at MJV Consulting on 01403 916727 or email us at info@mjvconsulting.co.uk. We’re here to help small businesses across Sussex, Surrey and London build teams that thrive.
