What SME Employers Need to Prepare for in 2026
The first wave of changes under the Employment Rights Act 2025 (ERA 2025) has now been confirmed. Regulations released in January 2026 set out important reforms that will take effect from February and April 2026.
For SME employers, these changes are significant. They affect industrial action rules, dismissal risks and family leave rights — all areas that can have operational and financial impact on smaller businesses.
Here’s what you need to know.
While trade union reform may feel more relevant to larger organisations, SMEs are not immune — particularly those in sectors such as care, education, logistics, manufacturing and transport.
From 18 February 2026, the following changes come into force:
For SMEs, this means:
Two important protections are being strengthened:
This significantly increases unfair dismissal risk where employees are dismissed in connection with strike activity.
For smaller employers without in-house legal teams, this raises the importance of getting early advice before taking action during disputes.
The Workers (Predictable Terms and Conditions) Act 2023 — which was passed but never implemented — has now been repealed.
However, similar reforms are expected to be delivered through the broader Employment Rights Act framework. SMEs using zero-hours contracts or variable hours arrangements should continue monitoring developments in this area.
From 6 April 2026, the service requirement for:
will be removed.
This means eligible employees will be able to take these types of leave from the first day of employment.
Smaller businesses often rely heavily on individual team members. Day-one leave rights mean:
Notice requirements remain in place, but importantly:
Employees can begin giving notice from 18 February 2026 in anticipation of becoming eligible in April.
SMEs should therefore review policies and ensure managers understand the new entitlement before April arrives.
For larger organisations, legislative change may be absorbed across dedicated HR and legal teams. For SMEs, the risk is more concentrated.
The 2026 reforms increase:
Failing to update policies or mishandling disputes could result in costly Employment Tribunal claims — particularly at a time when tribunal backlogs are already at record levels.
Now is the time to:
Proactive compliance is far more cost-effective than defending a tribunal claim.
At Montgomerie Consulting, we specialise in supporting small and medium-sized employers with practical, commercially focused employment law advice.
We provide:
If you would like help preparing your business for the Employment Rights Act 2025 changes, get in touch with our team.
April 2026 Changes Employers Need to Prepare For
When the Employment Rights Bill was first introduced to Parliament in October 2024, it was expected to pass swiftly. However, a number of controversial provisions led to significant parliamentary debate and amendments before the legislation was finalised.
One notable shift saw the Government move away from its original proposal to remove the qualifying service requirement for unfair dismissal entirely. Instead, from 1 January 2027, the qualifying period will reduce to six months.
In July 2025, the Government published Implementing the Employment Rights Bill: Our Roadmap for Delivering Change, outlining a phased implementation plan stretching through to 2027.
From April 2026, several significant reforms will come into force, including:
Each of these changes carries practical and financial implications for employers.
The most immediate operational impact for many employers will be the reform of Statutory Sick Pay.
From 6 April 2026:
For lower earners, this may result in different payment outcomes. For example, those earning between £129 and £154.05 per week may receive 80% of earnings if that figure is lower than the statutory flat rate.
Government guidance confirms:
With SSP payable from day one and no earnings threshold, absence management will become even more critical. Employers should:
From April 2026, a new Fair Work Agency (FWA) will consolidate enforcement powers currently spread across bodies such as HMRC and the Gangmasters and Labour Abuse Authority.
The FWA will:
This represents a significant shift towards proactive enforcement and may increase employer exposure to regulatory action.
In collective redundancy and “fire and re-hire” situations involving 20 or more employees, the maximum protective award for failure to consult properly will increase from 90 days’ pay to 180 days’ pay per affected employee.
This doubling of potential liability substantially increases financial risk where collective consultation obligations are not handled correctly.
Currently:
From April 2026, these qualifying periods will be removed.
Paternity and parental leave will become day-one rights, aligning with maternity leave. Notice requirements remain unchanged.
Employers will need to update policies and onboarding documentation to reflect these changes.
Disclosures relating to sexual harassment — including concerns that harassment has occurred, is occurring, or is likely to occur — will qualify as protected disclosures under whistleblowing legislation.
Employees will be protected from detriment or dismissal where:
Dismissal for making such a disclosure will be automatically unfair.
This increases the importance of having clear reporting channels, thorough investigations, and well-trained managers.
From April 2026:
Employers should ensure HR teams understand the new restrictions to avoid inadvertent breaches during recognition campaigns.
The April 2026 changes represent one of the most significant shifts in UK employment law in recent years.
Organisations should now:
Early preparation will reduce risk and ensure compliance well before implementation dates.
Claims Rise as Tribunal Backlog Exceeds 500,000
The latest Employment Tribunal statistics for July to September 2025, published by the Ministry of Justice, confirm a significant rise in claims — and growing pressure on the UK tribunal system.
For employers, these figures are more than data points. They signal increasing litigation risk, longer case timelines and higher exposure to employment law claims.
Between July and September 2025, Employment Tribunals received 26,000 new claims.
The most concerning statistic is the overall backlog. By the end of the quarter, the total number of open Employment Tribunal claims exceeded 515,000.
At the same time, the number of open tribunal cases reached 52,000, marking a 33% increase compared to the same period in 2024. Over the past year, new claims have consistently outpaced case disposals.
This growing tribunal backlog means longer waiting times for hearings and prolonged uncertainty for businesses defending claims.
Unfair dismissal claims were the most common type of claim, accounting for 23.7% of new cases — a total of 4,766 claims during the quarter.
With proposed changes to the qualifying period for unfair dismissal due to take effect in 2027, employers can expect further increases in this area.
Disability discrimination claims represented 14.8% of new claims, continuing an upward trend. Compared with the previous quarter, disability discrimination cases rose by 10.3%.
Discrimination claims carry uncapped compensation and significant reputational risk, making them particularly costly for employers.
Claims for unauthorised deduction from wages made up 12.2% of new cases, highlighting ongoing disputes around pay, holiday pay and contractual entitlements.
Public interest disclosure (whistleblowing) claims increased by 16.07% compared to the previous quarter, reinforcing the importance of robust internal reporting procedures.
Discrimination claims as a category accounted for 35.4% of all claims, increasing by approximately 5.7% on the previous quarter.
The rise in discrimination-related litigation reflects heightened awareness of equality rights and increasing scrutiny of workplace culture.
The Employment Tribunal system is under sustained pressure. With over half a million open claims, delays are likely to continue.
For employers, this means:
Even defensible claims can become costly when hearings are delayed for months — or even years.
The Employment Rights Act reforms are expected to reduce the qualifying period for ordinary unfair dismissal from two years to six months’ service from January 2027.
The Government estimates that millions more employees will gain the right to bring unfair dismissal claims.
If tribunal receipts are already at record levels, this expansion of eligibility is likely to increase claim volumes further.
With Employment Tribunal claims rising in 2025, proactive risk management is essential. Employers should consider:
Preventative HR strategy is significantly more cost-effective than defending tribunal litigation.
At Montgomerie Consulting, we work with UK employers to reduce exposure to Employment Tribunal claims through:
If you are concerned about rising Employment Tribunal claims or want to strengthen your employment law compliance, we would be happy to help.
Updated Implementation Timeline for 2026 and 2027
The Government has published an updated implementation timeline for the Employment Rights Act 2025, confirming when key employment law reforms are expected to take effect.
For UK employers, particularly SMEs planning workforce strategy and HR compliance updates, understanding these revised dates is essential.
The latest update refines the timetable originally set out in the Government’s Plan to Make Work Pay (1 July 2025) and confirms several important changes to expected commencement dates.
Here’s what you need to know.
A confirmed date has now been set for the establishment of the Fair Work Agency (FWA):
7 April 2026.
The FWA will consolidate enforcement powers currently held by multiple bodies and will have authority to:
For businesses, this signals a move towards stronger and more proactive enforcement of employment rights in 2026 and beyond.
Changes to electronic and workplace balloting for statutory trade union ballots will now take effect in August 2026.
These measures were previously expected to form part of the April 2026 reforms, but have been separated and delayed.
The introduction of electronic balloting is likely to modernise union processes and may increase participation in industrial action ballots.
Employers in unionised or potentially unionised environments should monitor this development closely.
Measures aimed at restricting controversial “fire and rehire” practices were initially expected in October 2026.
These reforms have now been postponed to January 2027.
The delay provides additional time for consultation and development of the final legislative framework. However, employers should not assume current practices will remain unaffected in the long term.
Advance planning around contractual change strategies remains advisable.
Another significant reform scheduled for January 2027 is the removal of the cap on compensatory awards for unfair dismissal.
Currently, unfair dismissal compensation is subject to a statutory maximum. Removing this cap could substantially increase financial exposure for employers in dismissal disputes.
Combined with the planned reduction in the qualifying period for unfair dismissal (to six months’ service), this change may significantly increase both:
For SMEs especially, this raises the importance of robust dismissal procedures and documented decision-making.
The updated Employment Rights Act 2025 timeline confirms that reform will continue to roll out gradually through 2026 and 2027.
Importantly:
The Government has confirmed that timings remain under review while consultations continue, meaning further refinements are possible.
Employers should now:
Early preparation reduces legal risk and avoids reactive compliance under time pressure.
At Montgomerie Consulting, we support SME and growing businesses with practical, commercially focused employment law advice.
If you would like support preparing for the Employment Rights Act 2025 reforms or reviewing your HR policies ahead of 2026 and 2027 changes, please get in touch.