Employment Rights Act 2025: The key changes ahead for accounting firms and their clients

The Employment Rights Act 2025 (ERA 2025) will bring significant changes to employment law in Scotland, England and Wales over the next two years. Some of these changes will have a direct impact on accounting firms, while others may be more relevant for clients.

Please note this article has been updated since initial publication.

What are the main changes and when will they become law?  

There are many additions and amendments to current employment legislation expected to be introduced over the next two years because of the ERA 2025. Consultations are ongoing and full details of how these will be implemented are due to be announced later in 2026 as enabling secondary legislation is introduced.  

The Department of Business and Trade has now confirmed the following:

From 6 April 2026

• Statutory Sick Pay will be paid from the first day of illness, rather than the fourth, as it is currently. The Lower Earnings Limit will also be removed, meaning more employees will be entitled to statutory sick pay and sooner.
• Paternity leave will become a right for employees from day one in a job, rather than requiring 26 weeks of service.
• There will be changes to the rules around unpaid parental leave, including new rights to unpaid leave from day one of employment.
• Workers disclosing sexual harassment concerns in the workplace will receive whistleblowing protection, giving legal protection against discrimination or unfair dismissal for raising such concerns.
• The maximum protective award for failure to properly consult on collective redundancies will increase from 90 to 180 days’ pay.
• Employers will have a new duty to keep records relating to annual leave and holiday pay for 6 years. This is new and it will be important for both accounting firms and their clients to be able to show evidence of these records.
• Bereaved Partners’ Paternity Leave – (non-MWP measure) will enable bereaved fathers and partners to take up to 52 weeks of paternity leave if the mother or primary adopter dies within the first year of the child’s life.
• There will be Menopause guidance issued and from this date business are encouraged to produce action plans on gender equality and supporting employees through the menopause. These will be voluntary in 2026 and then due to become mandatory in 2027.

From October 2026

• Employers will need to take ‘all reasonable steps’ to prevent sexual harassment in the workplace - a higher bar than the ‘reasonable steps’ requirements introduced in October 2024.
• Employers will also become liable for harassment by third parties including clients, customers and suppliers. This will extend to harassment arising from all protected characteristics.
• The legislation around tipping will be strengthened. Employers will need to make sure that their tipping polices are transparent and that workers are consulted when businesses are making any changes to their tipping policies.

From January 2027 

• Dismissal and rehire rules are expected to change to prevent employees being dismissed and rehired on less favourable terms - including pay, hours, holidays and pensions - unless the employer can demonstrate the changes are necessary for the business to remain viable.
• From 1 January 2027 employees will be protected from unfair dismissal after six months in a job rather than the current two-year requirement. This will be implemented retrospectively, meaning anyone employed continuously for six months or more prior to 1 January 2027 will be protected. The cap on compensation for unfair dismissal will also be removed.

From 2027 onwards

• There will be enhanced rights against dismissal of pregnant employees, those on maternity leave and those who have recently returned to work after maternity leave.
• Government will specify the steps that employers should take to comply with the requirement to take all reasonable steps to prevent sexual harassment.
• New statutory rights to bereavement leave, including for pregnancy loss, will be introduced.
• Workers on zero hours contracts will have the right to:
  • Guaranteed hours reflecting regular hours worked over a reference period (likely 12 weeks).
  • Reasonable notice of shifts.
  • Payment if shifts are cancelled on short notice.
• The right to receive flexible working patterns will change and employers will need to explain their rationale for denying any flexible working requests.
• Changes to collective redundancy processes will come in with a new collective consultant threshold.
• Government confirmed there will be further regulation of umbrella companies introduced in 2027.

The rights of Trade Unions will continue to be strengthened throughout 2026 and 2027.

Who’ll oversee these changes? 

The government has announced that the Fair Work Agency (FWA) will be established on 7 April 2026. The Agency will bring together the existing government bodies that enforce the various aspects of employment law.

What steps can you start taking to prepare? 

There are quite a few changes coming in this month. Most of these were known about previously, however, some updates that were previously expected to come in now fall later in the timeline. 

The requirement for businesses to keep records relating to annual leave and holiday pay for six years is new. Accounting firms will need to keep not only their own records, but also make sure that payroll clients are clear on the expectations here. 

It's also important to note that the change to the maximum protective award for failure to properly consult on collective redundancies has been brought forward from 2027 to 6 April 2026. HR policies and documents should be updated to reflect the changes prior to them coming in.