Employment Law Changes 2026: What Every SME Employer Needs to Know

title: "Employment Law Changes 2026: What Every SME Employer Needs to Know" category: Work & Income date: 2026-06-29 tags: [employment law, SME, HR, Employment Rights Act, employer] image: https://picsum.photos/seed/employment-law-sme-2026/2400/1350

The Employment Rights Act 2025 is reshaping the employment landscape for UK businesses in 2026. For small and medium-sized enterprises, these changes mean updated contracts, revised HR procedures, and new compliance obligations. Failure to adapt could expose your business to costly employment tribunal claims. Here is what you need to do and when.

Changes Already In Effect (April 2026)

Statutory Sick Pay: Update Your Policies Immediately

The three waiting days before Statutory Sick Pay (SSP) applied have been abolished. SSP now starts from day one of illness. There is no longer an earnings threshold — all employees qualify regardless of earnings. SSP is currently £116.75 per week for up to 28 weeks.

What to do: Review and update your sickness absence policy. Remove any reference to waiting days. Ensure your payroll software is updated to apply SSP from day one.

Day One Parental Rights: Review All New Starter Contracts

Paternity Leave and Unpaid Parental Leave now apply from day one of employment. Previously, these rights required 26 weeks' service. New starter contracts and employee handbooks must reflect this. If your standard contract template states an employee must work for a certain period before accessing parental leave, that clause is now legally incorrect for Paternity and Unpaid Parental Leave.

What to do: Update employment contract templates and HR handbooks. Audit any employee currently in their first year of service who may need to use these rights.

The Fair Work Agency: A New Enforcement Body

The Fair Work Agency is now operational. Unlike previous enforcement mechanisms that relied on individual employees bringing tribunal claims, this body can proactively investigate employers, issue compliance notices, levy financial penalties, and even bring claims on behalf of workers. It has broad powers over minimum wage, holiday pay, and other statutory rights.

For employers with strong compliance records, this changes little day-to-day. For those who have historically underpaid workers or been careless about record-keeping, the risk profile has materially increased.

What to do: Conduct an internal audit of minimum wage compliance, holiday pay calculations, and payslip accuracy. Ensure all payroll records are complete and retained for the required six years.

Holiday Pay Records: Keep Them for Six Years

Employers are now required to keep adequate records demonstrating compliance with holiday pay and entitlement rules for six years. This is a new formal requirement. If HMRC or the Fair Work Agency requests records, you must be able to produce them.

What to do: Check your payroll and HR system can generate six years of holiday entitlement and pay records. If you use a manual spreadsheet system, consider moving to compliant software.

Changes Coming in October 2026

Inform Employees of Their Right to Join a Trade Union

From October 2026, the written statement of employment particulars — which must be given to all new employees from day one — must include information about the employee's right to join a trade union. This is a new required clause. Existing employees do not need to be reissued contracts for this alone, but it is best practice to update your standard template now so all new starters receive it.

Tribunal Time Limits Double

From October 2026, the time limit for most employment tribunal claims doubles from three months to six months. This means that for dismissals, discrimination, or pay disputes occurring after October 2026, former employees have twice as long to bring a claim. Your exposure window widens — making thorough documentation of all HR decisions even more important.

What to do: Ensure you are documenting disciplinary processes, performance management, and redundancy procedures thoroughly and keeping records for at least two years from any employment decision.

Changes Coming in January 2027

Unfair Dismissal: Shorter Qualifying Period

The government is consulting on reducing the qualifying period to claim unfair dismissal. Currently two years, it is expected to reduce significantly. The exact new period has not yet been confirmed. Watch GOV.UK's employment law announcements for updates.

Fire and Rehire: Now Automatically Unfair

Dismissing an employee and rehiring them on worse terms ("fire and rehire") will become automatically unfair dismissal in most circumstances from 1 January 2027. If you are currently managing contractual changes this way, you must stop and take legal advice on alternatives.

SME Compliance Checklist

• Remove waiting days from sickness absence policy; update payroll for day-one SSP
• Update employment contract templates to reflect day-one Paternity and Unpaid Parental Leave rights
• Audit minimum wage compliance and holiday pay calculations
• Ensure six years of holiday pay records are retained and accessible
• Add trade union right-to-join clause to written statement template (ready for October 2026)
• Review and document all live disciplinary and performance management processes
• Take legal advice if any "fire and rehire" arrangements are in place

Key Numbers

• SSP from day one, rate £116.75/week (April 2026)
• Holiday pay record retention: 6 years (April 2026)
• Tribunal time limit doubles to 6 months (October 2026)
• Fire and rehire automatically unfair (January 2027)

Sources

• Acas: Employment Rights Act 2025
• GOV.UK: Business employment changes 2026
• Pinsent Masons: Employment Rights Bill timeline
• Longmores Solicitors: Key employment law changes 2026

Educational content only — not financial advice.