Days after announcing employment cost rises in the Budget, the Government has given businesses a boost by rowing back on the day one right to unfair dismissal. Instead, employees will need six month’s service before they can bring an unfair dismissal claim.

RSM UK’s Head of Employment Legal Services, Charlie Barnes, comments: “The Government has listened to concerns from business about the harm this would have on hiring, given the threat of litigation from day one.

“While the change wasn’t tabled until 2027, businesses can now have more confidence in hiring, knowing they will not be immediately faced with an unfair dismissal claim on day one. The Employment Rights Bill (ERB) sought to address this 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 have been here before with the statutory dismissal procedures in the late 2000s. There’s no detail yet on whether this will also be withdrawn, allowing employers to follow their own probationary process.

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

“The Autumn Budget saw the Chancellor announce 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 £1,000 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 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, meaning the change could therefore result in an average additional cost to employers of £71.25 per worker each year.

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

“Further details emerged in the Budget, with 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 and shaming cases by Summer 2026, and in future all employers who break the law will be named within a year of their case closing. Coupled with the expansion of its remit to include holiday pay and statutory sick pay, the FWA will need the Government to allocate significant resource if these targets are to be met. Secondly, it will 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 to be done to ensure employers fully understand their obligations to the FWA and the approach it will take. The last thing 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 The Times recently reporting a 900% increase in holiday pay claims since January 2024, the tide isn’t yet turning.”

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