Employment Rights Act 2026: A Payroll Cost Checklist for Small Business Owners

If you run a small business with employees, 2026 has brought a cluster of Employment Rights Act 2025 changes that land directly on your payroll costs and admin — several of them already in force. Here's a founder-level rundown of what to budget for.

The changes already in effect

• Statutory Sick Pay from day one, with no lower earnings limit, effective 6 April 2026 — every employee is now eligible from their first day of sickness, not just from day four and not just above a minimum earnings threshold, per Acas.
• Day-one paternity leave and unpaid parental leave rights, also from 6 April 2026 — new hires no longer need to build up qualifying service before these entitlements apply, according to Bird & Bird.
• Whistleblower protection extended to sexual harassment disclosures from the same date, meaning staff raising such concerns now have statutory protection from detriment or dismissal.
• Simplified trade union recognition process, also from 6 April 2026.
• Automatically unfair dismissal for taking part in lawful industrial action, in force since 18 February 2026.
• The Fair Work Agency, live since 7 April 2026, with the power to investigate and penalise employers directly — see our companion guide on how employees can use it to raise a complaint.

Budgeting for the cost impact

The SSP change is the one most likely to hit smaller payrolls hardest, since it both extends eligibility to your lowest earners and removes the three unpaid waiting days for everyone. If you employ several part-time or lower-paid staff, model your last 12 months of sickness absence against the new day-one, no-threshold rules to estimate the real cost difference — don't assume it's marginal.

Compliance checklist

• Update your payroll software or provider to confirm SSP is now calculated from day one with no earnings threshold — don't assume this happened automatically if you use an older system or manual process.
• Review your written statement of employment particulars for new starters to ensure paternity and parental leave entitlements reflect day-one eligibility, not a qualifying period.
• Brief your management team on the new automatically-unfair-dismissal rule around industrial action, so no one inadvertently exposes the business to a claim.
• Check your whistleblowing policy explicitly covers sexual harassment disclosures as a protected qualifying disclosure.
• Budget contingency time and cost for a Fair Work Agency enquiry — it now has direct investigatory powers rather than requiring an employee to fund their own tribunal claim first.
• Diarise the Making Tax Digital income tax deadline of 7 August 2026 if you're a sole trader alongside these payroll changes, since compliance workloads are stacking up in the same window.

Why this is worth doing now, not later

Smaller businesses without a dedicated HR function are the most likely to be running outdated payroll assumptions, and the Fair Work Agency's direct enforcement powers mean errors are more likely to surface as formal complaints rather than quiet informal fixes, per Clyde & Co's 2026 workplace law summary and Longmores Solicitors' SME briefing.

International comparison

Compared with the US, where paid sick leave and family leave remain governed by a patchwork of state laws with no federal minimum, the UK's day-one national entitlements represent a much higher compliance floor for employers. Germany's six-week full-pay sick leave obligation is more generous still, giving UK employers a sense of where reforms may head next. Australia's National Employment Standards already guarantee day-one access to most leave entitlements for permanent employees, a model the UK reforms move closer toward.

Key Numbers

• 6 April 2026 — effective date for day-one SSP, paternity leave, parental leave and whistleblower changes
• 18 February 2026 — effective date for automatically unfair dismissal during industrial action
• 7 April 2026 — Fair Work Agency operational start date
• 7 August 2026 — first Making Tax Digital quarterly return deadline for many sole traders and landlords

Sources

• Acas — Employment Rights Act 2025
• Bird & Bird — What's new from April 2026
• Clyde & Co — UK workplace law changes in 2026
• Longmores Solicitors — key 2026 changes for SMEs

Educational content only — not financial advice.