The Employment Rights Act Is Here, and Small Businesses Are Feeling It First

Ask any owner of a small business what has changed most in the last twelve months and the answer, almost universally, is people. Not AI, not the cost of borrowing, not energy bills. People. Specifically: the cost of employing them, the risk attached to managing them, and the paperwork required before, during, and after something goes wrong.

The Employment Rights Act 2025 received Royal Assent in December 2025 and is being introduced in stages across 2026 and 2027. None of the individual changes are, in isolation, unreasonable. But a business with five to fifteen people and no dedicated HR function is not facing individual changes. It is facing a cumulative weight that has landed all at once, and it is landing hardest on the businesses least equipped to carry it.

This is not a legal briefing. It is a plain account of what the changes actually mean when you are the person who also answers the phone, quotes the jobs, and sends the invoices.

Statutory Sick Pay applies from day one

Before April 2026, an employee had to be ill for three days before Statutory Sick Pay obligations kicked in. That waiting period is gone. From 6 April 2026, SSP applies from the first day of illness, which means the calculation changes immediately, but more importantly, so does the administrative requirement around it. You now need records that can stand up from day one. Not day four. Day one.

For a business running a small team, this matters most when absence is frequent or unpredictable. A three-person logistics operation, for example, where a driver being off on a Monday is already a crisis before you factor in anything statutory, now has to document and manage that absence in a way that carries legal weight from the moment it begins. The cost is not only the SSP itself. It is the time spent getting the paperwork right, and the risk if you do not.

Paternity leave applies from day one of employment

Day-one paternity leave rights came into force on 6 April 2026. A new employee who becomes a parent within their first week of employment is entitled to take paternity leave. That is a significant shift in how you have to think about early-stage employment, and it catches a lot of small employers off-guard because the assumption, understandably, was always that a probationary period offered a degree of breathing space. It does not, on this point, any more.

In practice this changes how you need to approach the first conversation with a new hire, what you record, and how your contracts are written. Without an HR adviser on hand, most small business owners are either not aware of this change or are aware of it but uncertain what it requires of them practically. Neither is a comfortable position.

Unfair dismissal rights will apply after six months

This is the change that will hit hardest and it is not yet in force, but it is close. The qualifying period for unfair dismissal is expected to reduce from two years to six months, with that change anticipated on 1 January 2027. The practical implication of that timing is significant: anyone you employed from July 2026 onwards will acquire those rights within months of the new rule taking effect.

The two-year qualifying period was, in reality, a buffer that many small businesses relied on more than they realised. It meant that if an early hire was the wrong fit, there was a window, a reasonable window, to address it without the full weight of an unfair dismissal claim. From January 2027, that window closes to six months. Which means the decision to hire, the quality of your onboarding, the robustness of your probation process, and the documentation around performance all carry materially greater legal weight than they did before.

Getting a dismissal wrong when the qualifying period was two years was bad. Getting it wrong when the qualifying period is six months, in a business with no HR resource, is a different proposition entirely.

The cost of employing someone has risen, even without a pay rise

The National Living Wage rose to £12.71 per hour in April 2026. Employer National Insurance contributions moved to 15%, up from 13.8%, and the secondary threshold at which those contributions begin dropped sharply, to £5,000 per year from £9,100. That means you are now paying National Insurance on lower wages, at a higher rate.

The Employment Allowance has increased to £10,500, which helps smaller employers, but the net effect for a business employing several people at or near the Living Wage is still a higher payroll cost than twelve months ago, before any actual pay increase has been negotiated.

Add to that the cost of recruiting badly, training someone, and then managing performance through a legally compressed probationary window, and the true cost of a hire that does not work out is considerable. A full-time employee on the National Living Wage costs significantly more than their headline salary once National Insurance, holiday pay, statutory sick pay, and the administrative time around managing them are included. That arithmetic matters when you are weighing a hire against an alternative.

Enhanced harassment prevention duties come into force in October 2026

An employer duty to take all reasonable steps to prevent workplace harassment is coming into effect in October 2026. For larger employers with a compliance team, this means updating policies and delivering training. For a small employer, it means doing those things without a compliance team, which in turn means either buying in legal or HR support to get it right, or hoping your existing approach holds up if challenged.

The reasonable steps test is the part worth focusing on. It is not enough to have a policy that says harassment is unacceptable. You need to be able to show what active steps you have taken to prevent it. That requires documentation, training records, and a degree of procedural structure that sits outside the day-to-day capacity of most small businesses.

Which roles carry the most exposure

When you look at these changes together, a pattern emerges. The roles most exposed are the ones that are hardest to recruit for, often part-time or variable, and where the relationship between employer and employee can feel informal even when it is not.

Administrative and reception-facing roles sit squarely in this category. They are the positions where small businesses most often try to manage with a junior hire on modest pay, where early-stage performance issues are most common, and where the new qualifying period for unfair dismissal creates the most risk if things do not work out.

They are also, not coincidentally, the roles where outsourcing the function sidesteps the employment relationship entirely.

A business that uses an outsourced Business Assistant or Telephone Answering service rather than employing a receptionist is not managing a probationary period. It is not calculating day-one SSP or paternity leave entitlements. It is not worrying about harassment prevention documentation for a team of one. The function is covered, the calls are answered, the administration is handled, and none of the employment risk attaches to the business owner.

That is not a small distinction. It is, increasingly, a structural one.

The smartest time to think about this is before the next hire

None of this is an argument against ever employing anyone. Most growing businesses reach a point where direct employment is the right answer for certain roles. But the question worth asking, before the next hire rather than after it, is whether the role you are about to fill is genuinely one that requires an employee, or whether it is one that could be delivered more flexibly and at lower total risk through an outsourced arrangement.

For administrative support, call handling, and the kind of business coordination work that keeps operations moving, the outsourced model has always made financial sense. Under the current employment law environment, it makes strategic sense too. The roles where small businesses are most exposed to the new obligations are almost exactly the roles where outsourced support is most established and most straightforward to put in place.

Need More Time has been working with small businesses on exactly this kind of support for nearly 24 years. The team operates Monday to Friday, 8 am to 6 pm, handling inbound calls, managing client administration, and supporting the running of businesses across a wide range of sectors, all without a script and all with people based in the UK. If you are looking at your team structure ahead of the January 2027 changes and wondering where the risk is sitting, it is worth a conversation.

Call us on 020 3303 3303 or take a look at our Business Assistant service page to see the kind of work our teams cover.