Days after announcing employment cost rises in the Autumn Budget 2025, the Government has given businesses a boost by rowing back on the day one right to unfair dismissal. Instead, employees will need six months service before they can bring an unfair dismissal claim. The Government has listened to concerns from business about the harm this would have on hiring, given the threat of litigation from day one.

How the Employment Rights Bill will change unfair dismissal rights

While the change wasn’t tabled until 2027, businesses should have more confidence in hiring as part of their growth plans, knowing they will not be immediately faced with an unfair dismissal claim on day one. The Employment Rights Bill (ERB) sought to address that with an exemption if the employer had followed a ‘statutory probationary period’, rumoured to be nine months. However, that raised the potential for further litigation from employees claiming the process wasn’t correctly followed. We’ve been here before with the statutory dismissal procedures in the late 2000s. There’s no detail yet on whether this will also be withdrawn and employers allowed to follow their own probationary process, but hopefully it will.

The Government has stated the concession was made to ensure the first measures under the ERB can be introduced from April 2026. Assuming the Government’s back benchers pass the change, and it is sufficient for the House of Lords to waive the rest of the ERB through, it’s looking more likely that the Government’s implementation roadmap will be met.

National Minimum Wage 2026: what the new rates mean for employers

The Chancellor announced the new rates of National Minimum Wage (NMW) to apply from 1 April 2026, with the top rate increasing by 4%, to £12.71 an hour. That equates to about a £1k pay rise for those over 21 working 40 hours a week and a minimum salary of about £26,500. The employment costs for younger workers will rise by 8.5%, from £10 to £10.85 for 18–20 year olds, as the Government pursues its commitment to having one rate of NMW for all workers aged 18 and over.

Employers will also need to prepare for further cost increases from Statutory Sick Pay (SSP) being payable from day one rather than day four, and the lower earnings threshold being removed. In 2024, according to the Office for National Statistics, the average number of sick days per worker was 4.4 days. The change could result in an average additional cost to employers of £71.25 per worker each year.

When will the Fair Work Agency launch?

The Government’s concession on unfair dismissal rights indicates its commitment to launching the Fair Work Agency (FWA) by April 2026. The FWA will be responsible for enforcing basic employment rights such as NMW, holiday entitlement and pay, and SSP. The agency has further powers to bring employment tribunal claims on behalf of workers, and to hold directors and leaders personally liable for any offences committed.

Further details emerged in the Budget commentary with the Government doubling down on its commitment to punish employers who fail to comply. Firstly, it has committed to getting rid of the backlog of NMW ‘naming shaming’ cases by summer 2026 and that all employers who break the law going forward will be named within a year of their case closing. Coupled with the expansion of its remit to include holiday pay and SSP, the Government will have to allocate significant resource to the FWA if these targets are to be met. Secondly, it will also explore powers to disqualify directors of non-compliant businesses placing further compliance burdens on businesses and their leaders.

With only four months to go, there is still much that needs to be done to ensure employers fully understand their obligations to the FWA and the approach it will take. The last thing that businesses and workers need is an enforcement body that isn’t prepared and properly resourced to undertake its remit. The FWA is an opportunity to level the playing field for those who are complying with the law and government guidance. Working co-operatively with businesses and individuals, it may also be the valve to release the pressure on the employment tribunals. With a recent freedom of information request indicating a 900% increase in holiday pay claims since January 2024, the tide isn’t turning.

For more information, please get in touch with Charlie Barnes or your usual RSM contact.

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