The Employment Rights Act (ERA) came into law shortly before Christmas 2025, and all employers operating in the UK will need to prepare for the many changes it introduces to worker rights.

Although the changes will be introduced in stages over the next two years, they represent the biggest reform to employment law for over 30 years. We haven’t seen a transformation of this magnitude since the introduction of the National Minimum Wage and the Working Time Regulations in the late 1990s.

With the first measures taking effect from April 2026, employers must use this short window to identify which elements of the ERA pose the greatest challenges to their organisation and plan a strategy for the additional costs, changes to policies and the impact on the workforce.

Forecasting the true cost of the ERA

The government estimated that the ERA will cost employers around £5bn a year (although the true cost could be greater). One immediate area many employers need to budget for is the change to statutory sick pay (SSP). The earnings threshold will be removed, and entitlement will start from the first day of sickness absence, rather than after three consecutive days. With the average number of sick days in the UK last year being 4.4 per employee, this will generate a sizeable cost for some employers which needs to be budgeted for. There is also the thought that this may increase workplace absences, with the additional cost of covering those increased sickness days.

With unfair dismissal rules becoming a right after 6 months’ service, rather than the previous 2 years, litigation risks and costs are also set to rise. Even where employers successfully defend claims, they are still exposed to legal fees, the impact on management time and potential reputational harm.

Beyond direct employment costs, businesses will need to allocate more resources and training to manage the ERA changes. Rewriting policies, training managers on new processes and updating HR systems.

Businesses would be wise to update budgets for all these changes, if they have not already, to manage the cash flow impact and avoid panicked cost-cutting measures that might not serve in the long term. This will involve engagement across HR, finance and the operational side of the business.

Mounting pressure on HR teams

For some employers, particularly those with no HR team or already overstretched resources, the ERA represents a huge operational challenge.

The right to be offered guaranteed hours of work is a prime example. As proposals currently stand, employers will need to review a casual worker’s hours worked every 12 weeks and offer a permanent contract that reflects those hours (and the times/days they were worked). A challenge for a single worker but a mammoth task for businesses with hundreds or thousands of casual workers. As well as increasing labour costs, especially if there has been a spike in demand meaning casual workers have worked more hours, this introduces a complex process for HR teams to administer. Whilst exemptions may be applicable for some, businesses will need to take advice to understand what those exemptions are and when they will apply.

Trade union recognition is another area where HR teams could feel increased strain. It will become easier for workers to force employers to recognise a union and unions will have unprecedented rights of access to company premises (physically and digitally) , for which employers will need to meet strict criteria to refuse. For employers with limited experience of unions, dealing with recognition requests could create significant challenges.

Businesses that aren’t equipped to handle this extra HR workload will need to re-evaluate their People teams or seek external support to adapt to the changes. Smaller businesses will struggle the most, especially those with no HR function. They may need to rely on guidance from the government or bodies such as ACAS, but it may be sensible to seek tailored advice to adapt to the new rules in the short term.

Increased exposure to litigation

Workplace disputes are rising. Between 1979 and 2024, the number of tribunal claims increased by 185%. A huge proportion of employees are feeling frustrated, with 44% of working-age adults experiencing a conflict at work in the last 12 months. Cost of living pressures are no doubt contributing to the tensions, and the enhancement of employment rights under the ERA will compound the challenge.

Employers will also have to prepare for a change in the way employment rights are enforced with The Fair Work Agency (FWA), launching in April 2026. The FWA will be responsible for enforcing NMW, holiday pay and statutory sick pay and will have the power to publicly name uncompliant employers, order repayments of any arrears over the previous 6 years and impose financial penalties of up to 200% of any underpayment. All employers should prioritise auditing their HR and payroll systems and processes to ensure that they are compliant with these complex rules to avoid falling foul of the FWA.

Hiring decisions will become inherently riskier from a dispute and litigation point of view. While unfair dismissal will not become a day-one right as originally proposed by the government, the qualifying period will reduce from two years to six months and, in an unexpected move, the limit on compensation for unfair dismissal claims will be lifted. These changes, will expose employers to a greater risk of litigation with any prospective new hire, potentially stalling recruitment decisions. The lifting of the cap on unfair dismissal claims will also place greater risks around the treatment of higher earning employees where there may be performance issues.

Consequently, employers will need to ensure that their disciplinary and dismissal procedures are reviewed to remove weaknesses and strengthen protections.

Finding opportunities within the ERA

For some employers, there may be a reputational upside to the ERA. For example, employers that already meet or exceed ERA requirements have a positive message to share with their employees. Even in a challenging job market that is set to tighten further as employers hire more cautiously, attracting and retaining the best talent remains a priority. Being able to show commitment to fair and responsible employment will help employers compete for and retain those people.

Another opportunity lies in building better relationships with employees. By creating employee forums or using staff surveys to engage with employees and listen to feedback, whilst forming and improving engagement with relevant trade unions, formal recognition may not be needed.

A practical first step: assessing the risks

The ERA represents a fundamental shift in how businesses manage people, risk and costs. Although there is still a lack of clarity around many of the changes, employers cannot afford to wait for certainty to act. In just a few months, these changes will begin to take effect and employers need to begin preparing now.

A risk assessment is a sensible place to start. Businesses are going to be affected in different ways, so it’s important to go through every area of the ERA to determine its impact and the timing of the change. Using a traffic light system can work well, with red for areas with urgent and impactful change, amber for potential change, and green for no action needed. It gives businesses structure and a list of priority areas to start preparing with less panic.

If you would like our help in assessing your business and preparing for the ERA, please get in touch with Charlie Barnes.

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