2026-27 employment law changes: What small business owners need to know

Running a small business means you’re expected to be an expert in everything. Finance, marketing, HR – it all falls on you. So, when you don’t have the luxury of industry experts on the payroll, you need a business partner that backs you.

It’s important that we support our small business customers with more than just finance. That’s why we’ve written a guide to the Employment Rights Act 2025, the biggest overhaul in employment law for a generation. Since it became law on 18th December 2025, changes are being phased in over 2026 and 2027. 

In our first blog on the new workplace rights – Employment law changes are coming in April 2026: What small business owners need to know – we explained how the first phase of changes could affect your business, and how small business owners could prepare. 

Now, with the next phase of reforms in force as of October 2026, here’s our new guide to the latest changes and what you must do now to ensure your business is compliant.

What is the Employment Rights Act 2025?

Offering protection, fairer pay and more rights to millions of workers, the Employment Rights Act 2025 focuses on six key areas:

1. Ensuring jobs offer a baseline security to workers – includes zero-hour contracts, ‘fire and rehire’ or ‘fire and replace’ practices, unfair dismissal and collective redundancy rights.

2. Ensuring workers get fair pay – includes statutory sick pay and tipping.

3. Strengthening family-friendly rights – includes paternity and unpaid parental leave from day one, bereavement leave, protections against dismissal for pregnant women and flexible working requests.

4. Prioritising fairness, equality and wellbeing – includes steps to prevent sexual harassment, protect whistle-blowers and improve gender equality.

5. Modernising trade union legislation – includes simplifying union recognition and industrial action rules, and strengthening trade union rights.

6. Improving enforcement of employment rights – includes establishing the Fair Work Agency and extending employment tribunal claim deadlines.

The first implementation milestone in April 2026 dealt with statutory sick pay, paternity and unpaid parental leave, collective redundancy rights and whistleblowing protection for sexual harassment.

Employment law changes – October 2026

The following became law in October 2026:

Employment Tribunal claims

From 1st October 2026, the time limit for bringing a claim to the Employment Tribunal has increased from three months to six months. For breach-of-employment-contract claims in Scotland, the change takes effect on 9th November 2026.

This change gives employees longer to bring claims, meaning disputes may arise later after an incident or employment decision.

For small businesses, this makes it particularly important to keep accurate records of performance issues, disciplinary procedures, grievances, dismissals and other employment decisions.

Trade union rights strengthened 

From 30th October 2026, trade unions gained stronger rights to access workplaces, alongside changes to union recognition processes, and protections for trade union representatives.

Workers will receive enhanced protection against being disadvantaged for taking part in lawful industrial action.

For small businesses, this means understanding the new rules around union access and recognition, and ensuring managers do not penalise workers for exercising their union rights. Employers should review their policies and familiarise themselves with the new requirements.

New harassment prevention requirements

Also as of 30th October 2026, employers must take ‘all reasonable steps’ to prevent sexual harassment of their employees. This duty also extends to harassment by third parties, such as customers or clients, meaning businesses could be held liable if they fail to take appropriate preventative measures.

For small businesses, this means reviewing harassment policies, assessing workplace risks, providing appropriate staff training and ensuring employees have clear ways to report incidents.

Tipping law tightened

Additionally, by the end of the year tipping law will be tightened to increase transparency and accountability.

Employment law changes coming in 2027

The next milestone small businesses should be aware of is January 2027. That’s when the following changes are scheduled to become law:

• Trade unions – duty to inform workers of their right to join a trade union.

• Unfair dismissal – the qualifying period for unfair dismissal will fall from two years to six months, from 1st January 2027. The cap on compensatory awards for unfair dismissal will be removed.

• Fire and rehire – stronger protections against dismissing employees and rehiring them on worse terms. 

Looking further ahead, planned changes for 2027 include:

• New rights around flexible working

• Enhanced protections for pregnant women and new mothers

• Bereavement leave, including pregnancy loss 

• Guaranteed hours and shift notice for eligible workers

For an up-to-date implementation timeline, check the Government’s Plan to Make Work Pay and Employment Rights Act.

If you plan to invest to stay compliant with the Employment Rights Act 2025, visit our website to see what finance might be available to you.

05/11/26: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.