VC & Policy (UK)

Employment Rights Act 2025: An October 2026 Update for Startups

An October 2026 correction of the Employment Rights Act timetable, phased Fair Work Agency remit and ordinary unfair-dismissal rules. Original publication dates are retained.

Obvio Tech Editorial

Mar 27, 2026 7 min read

Archive correction — 14 October 2026. This article originally described April changes as imminent. Those dates have passed. The Employment Rights Act 2025 is being commenced in phases, not just two waves; the current government timetable should be checked before acting. Future dates can change. Original publication dates are retained.

Key Points

6 April 2026: Statutory Sick Pay payable from day one; protective redundancy awards double; new day-one family leave rights take effect; holiday pay records become mandatory.
1 April 2026: National Minimum Wage rises to £12.71 per hour for workers aged 21+.
7 April 2026: The Fair Work Agency was established. Its remit is phased; creation did not activate every proposed enforcement function.
January 2027: The published timetable schedules a six-month qualifying period for ordinary unfair dismissal and removal of the compensatory-award cap. Service must be assessed for the actual dismissal date.
Cost planning: Model the provisions that apply to your workforce; this article does not establish a single implementation cost for a startup.
CIPD Winter 2025/26 survey (2,082 UK HR decision-makers): The Act described as a handbrake on hiring.

Employment Rights Act 2025 UK Startups: Background and Context

The Employment Rights Act 2025 received Royal Assent on 18 December 2025. Commencement and territorial extent must be checked provision by provision; Royal Assent did not bring the entire Act into force.

For employers, a practical approach is to identify which changes are already in force, which are scheduled, and which still need regulations or consultation. Keep an owner and a review date for each payroll, leave and dismissal-policy change.

What Changed on 6 April 2026

Statutory Sick Pay (SSP) For Employment Rights Act 2025 UK startups and their workforce, the three-day waiting period before SSP is payable is abolished. From 6 April, SSP is owed from the first day of a sickness absence — at £123.25 per week or 80% of the employee’s normal weekly earnings, whichever is lower (GOV.UK, 2026). The lower earnings limit that previously excluded lower-paid staff from qualifying is also removed. There is no rebate scheme for small businesses. None.

Collective Redundancy — Protective Awards The maximum protective award for failure to collectively consult before redundancy doubles from 90 days’ pay to 180 days’ pay per affected employee. For VC-backed companies that have gone through headcount reductions in the past 18 months, this materially changes the financial exposure attached to any process failure in future restructuring events.

Day-One Family Leave Rights Service requirements for paternity leave and unpaid parental leave were removed from 6 April 2026. Other eligibility and notice conditions still apply; leave entitlement must not be confused with entitlement to statutory pay. Bereaved Partners’ Paternity Leave can provide up to 52 weeks in qualifying circumstances.

Holiday Pay Record-Keeping The Act requires adequate records of statutory holiday and holiday pay, with the relevant provision commenced on 6 April 2026. Review the actual records and retention rules rather than treating this as a future deadline. Legislation and commencement annotations.

Whistleblowing — Sexual Harassment Reporting workplace sexual harassment becomes a qualifying disclosure under whistleblowing law from 6 April. Employees making such disclosures gain employment protections against detriment and dismissal.

National Minimum Wage Five days earlier — from 1 April 2026 — the National Minimum Wage rises to £12.71 per hour for workers aged 21 and over. The 18–20 age group rate rises to £10.85. Startups with junior or customer-facing roles that have not yet updated payroll are already behind.

Who Is Affected — and the Specific Startup Exposure

Do not assume a small employer is exempt. Equally, do not apply every measure indiscriminately: the relevant employment status, territorial extent, eligibility and commencement rules matter. Northern Ireland employment law requires separate checking where applicable.

Cost-base recalibration. Higher SSP obligations, doubled redundancy penalty risk, and NMW increases add to the per-head employment cost. These flow directly into operating expenditure projections and runway calculations. Investors reviewing Q2 2026 board packs should expect updated headcount cost assumptions — if they have not already received them.

Restructuring risk. The maximum collective-redundancy protective award increased from 90 to 180 days’ pay. This doubles the ceiling, not an automatic award in every case. Actual liability depends on the circumstances and the tribunal’s decision.

Governance. Assign responsibility for payroll, leave records and workplace policies. The Fair Work Agency’s current enforcement statement identifies the functions it exercises; proposed later functions should not be represented as having been operational from launch.

Analysis: The Policy Stack Raising Startup Risk in 2026

ObvioTech analysis: employment rules are one part of a company’s operating environment, alongside tax, data protection and sector-specific obligations. Their effects should be costed for the actual business; this article does not measure the net effect of all UK policy changes on startups.

ObvioTech analysis: smaller employers may have less spare administrative capacity for policy changes. That is a planning consideration, not a quantified conclusion about the cost borne by every startup. Budget against the actual obligations and workforce rather than a generic national total.

ObvioTech analysis: employment costs, financing conditions and exit plans can interact, but an employer should not assume that every UK IPO or acquisition route is blocked. Assess the company’s own cash-flow and hiring plans.

The January 2027 Wave — Why Hiring Decisions Made Now Matter

The published timetable schedules the ordinary unfair-dismissal qualifying-period change for dismissals from 1 January 2027 and the uncapping of compensatory awards. These are distinct from rights which already have no service requirement and from other kinds of tribunal award.

A person starting on 1 July 2026 reaches six months on 1 January 2027; someone starting later does not reach six months on that date merely because they were hired after July began. Check continuity of service and the effective termination date. Some automatically unfair dismissal and discrimination claims do not require the ordinary qualifying period.

For relevant events from 6 April 2026, the ordinary unfair-dismissal compensatory limit is generally the lower of £123,543 and 52 weeks’ pay, subject to statutory exceptions. The basic award is separate. The 2026 limits order updates the monetary ceiling; the scheduled 2027 change does not mean an unlimited award is automatic or that every tribunal remedy currently has a cap.

This stacks alongside carried interest tax changes already affecting UK fund manager economics, as the cumulative regulatory and tax burden continues to reshape the economics of building and backing companies in the UK this year.

Timeline and Next Steps

The table below selects changes relevant to this article; it is not the complete programme. Check the official implementation timetable for other measures, dates and exceptions.

Date	Change
1 April 2026	National Minimum Wage increases — £12.71/hour (21+)
6 April 2026	SSP from day one; protective awards double; day-one family leave; holiday records mandatory; whistleblowing extended
7 April 2026	Fair Work Agency established; check the remit and phased powers
August 2026	Electronic balloting for trade union ballots introduced
October 2026	Time limits extended from 1 October; breach-of-contract claims in Scotland follow on 9 November, according to the updated timetable
1 July 2026	Example start date reaching six months on 1 January 2027; later starts reach it later
January 2027	Scheduled ordinary unfair-dismissal qualifying-period reduction; compensatory-award cap removal

Immediate actions for UK startups and their boards:

Verify SSP policy and payroll configuration reflect changes already effective from 6 April 2026.
Review collective redundancy procedures against the doubled protective award exposure.
Confirm paternity and parental leave policies reflect day-one eligibility.
Verify statutory annual-leave and holiday-pay records are adequate.
Brief HR leads on the revised whistleblowing policy requirements.
Review probation and performance-management processes against the scheduled January 2027 rules; document decisions from the start of employment.

As at 14 October 2026, some measures remain scheduled or subject to parliamentary processes. Obtain current advice for a proposed dismissal, redundancy or contract change rather than relying on this archive’s original publication date.

For broader analysis of the policy and regulatory environment reshaping UK venture capital in 2026, explore the ObvioTech VC & Policy intelligence series.

This article provides general information only and does not constitute legal advice. UK employment law is subject to ongoing secondary legislation and consultations. Seek qualified legal advice before making structural decisions.

Sources and Further Reading