The UK employment law landscape is entering a period of significant transformation. With April 2026 marking the first major implementation phase of the Employment Rights Act 2025 (ERA 2025), followed by further reforms in October and into 2027, SMEs are facing one of the most substantial shifts in workplace regulation in recent years.
This is not simply a matter of compliance. These changes reflect a broader move towards greater transparency, fairness, and accountability in the workplace. For small and medium-sized businesses, often operating with limited HR resource, the challenge will be balancing compliance with operational and financial sustainability. While some elements of the legislation are still being finalised, the direction of is clear: enhanced employee protections and increased employer responsibility.
Here Lisanne Mwanza, HR & Operations Manager at Oxford HR, based here at Grassroots, outlines the key changes most likely to impact SMEs – both operationally and financially, as well as the practical steps employers should be taking now to stay ahead and minimise disruption.
Key Employment Law Changes SMEs Must Prepare For…
April 2026: Immediate Operational Impact
Whilst family-friendly policy reforms attract the most headlines, the most pressing changes arriving in April are actually more likely to be:
Statutory Sick Pay (SSP) Reform
Arguably the most significant immediate shift for SMEs, SSP will become payable from day one of absence, with the removal of both the lower earnings limit and waiting period. This means:
- More employees will qualify for SSP
- Employers may see an increase in short-term absences
- Payroll costs and workforce planning pressures may rise
For SMEs that do not currently offer enhanced sick pay, this change could have a noticeable operational and financial impact almost overnight.
Whistleblowing and Sexual Harassment Protections
Sexual harassment will explicitly fall within the scope of protected whistleblowing disclosures. This strengthens employee protections and increases the importance of robust internal reporting mechanisms. This reform also sets the foundation for further obligations coming later in the year.
October 2026: Increased Employer Accountability
Third-Party Harassment Duty
Employers will be required to take ‘all reasonable steps’ to prevent unwanted conduct (including sexual harassment) from third parties such as customers, clients, and suppliers.
While detailed government guidance is still expected, the implications are clear:
- Employers must proactively assess risk in customer-facing environments
- Preventative measures (training, policies, controls) will be essential
- Swift and effective responses to complaints will be critical
This represents a notable shift in employer liability and will require SMEs to think beyond internal culture and consider external interactions.
Looking Ahead to 2027: Structural Workforce Changes
Unfair Dismissal Reform
The qualifying period for unfair dismissal claims is expected to reduce to six months, meaning this would apply to new hires from as early as July 2026.
This will:
- Reduce flexibility in managing new employees
- Increase the importance of robust onboarding and probation processes
Zero- and Low-Hour Contract Reform
New rules are expected to strengthen rights around predictable working hours, limiting flexibility in workforce scheduling.
Migration and Sponsorship Changes
Ongoing reforms are increasing the cost and compliance burden for employers hiring overseas workers, with tighter scrutiny on sponsor licence holders, including the length of needing to sponsor.
Collective Redundancy Thresholds
Proposals to move from a site-based to a business-wide threshold may affect how redundancy obligations are calculated – particularly relevant larger businesses but also growing SMEs.
The Two Reforms That Will Hit SMEs the Hardest
While many of the changes are significant, two stand out in terms of day-to-day impact:
1. Statutory Sick Pay Reform
Its immediacy and broad applicability make SSP reform the most operationally disruptive. SMEs should prepare for:
- Increased eligibility
- Higher absence rates
- Greater need for contingency staffing
2. Third-Party Harassment Liability
This introduces a new level of responsibility that extends beyond the workforce itself. Employers must:
- Anticipate risks involving customers and clients
- Implement preventative measures
- Manage potential reputational and commercial implications
Where Will SMEs Feel the Financial Pressure?
These reforms bring both direct and indirect costs. The most notable pressures include:
- SSP Reform: Increased payroll costs and potential productivity loss
- Migration Changes: Higher sponsorship fees and compliance requirements
- Zero-Hours Reform: Reduced flexibility may lead to higher staffing costs
For SMEs, careful financial planning and workforce modelling will be essential.
What Should SMEs Be Reviewing Right Now?
This is an ideal time for SMEs to audit contracts, policies, and procedures. Key areas to prioritise include:
Harassment Policies
- Ensure coverage includes third-party harassment
- Define clear reporting and escalation routes
Family-Friendly Policies
- Align with current and upcoming statutory rights
Sick Pay Policies
- Update to reflect day-one SSP eligibility
- Clarify internal absence reporting processes
Whistleblowing Procedures
- Ensure employees can raise concerns safely and confidentially
Three Actions Every SME Should Take in the Next Six Months
Preparation is key.
SMEs that act early will be far better positioned to manage both compliance and cost.
1. Update Your Sick Pay Approach
Prepare for day-one SSP eligibility and communicate changes clearly to employees ahead of April 2026.
2. Get Ahead of the October Harassment Duty
- Conduct risk assessments, particularly for customer-facing roles
- Review contracts with third parties
- Deliver training for managers and staff
- Implement clear reporting and escalation procedures
3. Plan for Workforce Impact
Consider how reforms will affect:
- Absence management and cover
- Reliance on flexible or zero-hours workers
- Hiring, onboarding, and dismissal practices
Burden or Opportunity?
The reality is that these reforms are both.
There is no question that they will increase administrative workload, time pressure, and costs – especially for SMEs with limited HR infrastructure. However, they also present a strategic opportunity.
Stronger employee protections can:
- Improve retention and engagement
- Strengthen workplace culture
- Reduce long-term legal and reputational risk
Forward-thinking SMEs can go further, by exploring initiatives such as menopause policies or proactively addressing gender pay gaps ahead of future regulation which we know is coming.
Final Thoughts…
For SMEs that take a reactive approach, the coming changes may feel overwhelming. But for those that plan ahead, these reforms offer a chance to build more resilient, inclusive, and attractive workplaces.
The key is to start now: familiarise yourself with all the changes, review your policies, assess your risks, and align your people strategy with the direction of change in UK employment law.
About Oxford HR
Oxford HR is a B Corp certified leadership consultancy working with impact led organisations to source senior talent and advise on organisational design and development. https://oxfordhr.com/
This article provides a general overview of upcoming legal changes and does not constitute legal advice. Employers should seek tailored guidance based on their specific circumstances.
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