The Employment Rights Act 2025: What Small Business Owners Actually Need to Do First

If you have read anything about the Employment Rights Act 2025 recently, you have probably come away feeling one of two things. Either mildly overwhelmed by the length of the list, or quietly hoping it does not apply to you because you only have a small team.

We want to address both of those reactions directly, because we see them every week when we speak to founders and business owners across London and Essex.

The Employment Rights Act 2025 is real, it is already partly in force, and it does apply to your business, regardless of how many people you employ. But it is also manageable. And if you know where to focus first, it is far less daunting than the headlines suggest.

This post cuts through the noise. Here is what has changed, whether it affects you, and the four things you actually need to do first.

Does the Employment Rights Act 2025 Apply to Small Businesses?

Yes. Fully. There is no size threshold below which the Act does not apply.

One of the most common things we hear from founders is: “We only have twelve people, surely this is aimed at big employers?” It is not. Every employer who employs at least one person is covered by the Employment Rights Act 2025.

In fact, small businesses often face greater exposure than large ones precisely because they tend to have less formal processes, older contracts, and fewer HR resources. A large employer with a legal team and an HR director has been preparing for this for months. A founder running a fifteen-person agency probably has not.

The good news is that for most small businesses, the changes that require immediate action come down to four areas. You do not need to tackle everything at once. You need to start in the right place.

What Has Actually Changed?

The Employment Rights Act 2025 introduces changes across six main areas of employment law. Here is a plain-English summary of what each one means for a small business:

1. Statutory Sick Pay

SSP is now payable from day one of sickness absence. The previous three waiting days have been abolished. The lower earnings limit has also been removed, meaning every employee qualifies for SSP regardless of what they earn.

If your sickness absence policy still says employees are not paid for the first three days, it is now wrong. This is one of the most straightforward fixes in the entire Act, but many businesses have not done it yet.

2. Unfair Dismissal

The qualifying period for unfair dismissal has been reduced from two years to six months. Compensatory awards are also being uncapped entirely from January 2027.

This is significant. Many small business owners have relied on the two-year qualifying period to give them breathing room when a hire does not work out. That safety net is largely gone. If you dismiss someone after seven months without a fair, documented process, they can now bring an unfair dismissal claim.

3. Zero-Hours and Casual Contracts

Workers on zero-hours or variable-hours contracts who work regular patterns are now entitled to be offered guaranteed hours reflecting their actual working pattern. There are also new rights to reasonable notice of shifts and compensation when shifts are cancelled at short notice.

If you use zero-hours, casual or low-hours contracts in your business, even for a small number of people, you need to review them.

4. Sexual Harassment Prevention

Employers now have a strengthened positive duty to take reasonable steps to prevent sexual harassment. Employer liability for harassment by third parties, including customers, clients and members of the public, has been reinstated. A tribunal can apply a compensation uplift of up to 25% where an employer has not taken sufficient preventative steps.

This is not just a policy update. It requires you to actively assess the culture and environment in which harassment could occur.

5. Fire and Rehire

It is now automatically unfair to dismiss an employee and re-engage them on different terms in most circumstances. If you have ever needed to change an employee’s hours, pay or working arrangements and been told by an adviser to “let them go and re-hire on the new terms,” that approach is now essentially off the table.

6. Trade Union Rights

The statutory recognition process has been simplified and unions now have new rights to access workplaces digitally. This is most relevant for businesses with 21 or more employees, but worth being aware of.

What Do Small Business Owners Actually Need to Do First?

Here is the honest answer. You do not need to tackle all six areas simultaneously. Start with the four that apply to almost every small business and that carry the most immediate risk.

First: Update Your Sickness Absence Policy

This is the most urgent and the most straightforward. If your sickness absence policy references three waiting days, it is now factually incorrect. Update it to reflect day-one SSP entitlement and brief your managers on what has changed. This is a fixed-scope piece of work that should not take long.

Do not leave this one. An incorrect policy that misleads staff about their entitlements is a risk you do not need.

Second: Sort Out Your Probationary Process

If you rely on the two-year qualifying period to manage exits when a hire does not work out, you need to change your approach now. From the moment someone joins your team, your probationary process needs to be formal, structured and documented.

That does not mean bureaucratic or heavy-handed. It means having clear performance expectations from day one, regular review conversations that are written down, and a process that would stand up to scrutiny if challenged. A well-run probation period is your best protection under the new rules.

Third: Review Your Sexual Harassment Approach

Check whether your current harassment policy covers third-party harassment, meaning harassment by customers, clients, audiences, contractors or members of the public. If it does not, update it.

More importantly, think about whether you have carried out a documented risk assessment of the environments in which your team works. For client-facing businesses, performing arts organisations, hospitality venues and anyone whose staff interact with the public, this is not optional. It is the evidence you need if a claim is ever brought.

At Sleek HR, we also see this as an opportunity rather than just a compliance obligation. The businesses that treat this seriously tend to have better cultures, lower staff turnover and stronger employer brands. Compliance and inclusion are not separate conversations.

Fourth: Check Your Zero-Hours and Casual Arrangements

If you use zero-hours, casual or variable-hours contracts, take stock of who is on them and what hours they are actually working. If any of those workers have been working regular, predictable patterns, they may now be entitled to guaranteed hours reflecting that pattern.

This is especially relevant in sectors like social care, hospitality, the arts, logistics and retail. But it applies anywhere that flexible staffing is used.

What About the Other Changes?

Fire and rehire and trade union rights are the other two main areas of the Act. For most small businesses, these are less immediately urgent than the four above. But they are worth understanding.

If you have ever needed to change an employee’s contractual terms and used dismiss-and-re-engage as a backstop, that route is now effectively closed. If you are planning any changes to pay, hours, benefits or working arrangements, take advice before you start the process. The lawful route involves genuine consultation and documented agreement. It is not complicated, but it is different to what many businesses have done in the past.

On trade union rights: if your team is well below 21 people, this is low priority for now. Keep it on your radar as you grow.

The Honest Bit About Risk

we want to give you an honest picture of what is at stake, without being alarmist about it.

A single unfair dismissal claim with uncapped compensation, for an employee on even an average salary, could result in an award of many months’ pay. The cost of putting a proper probationary process in place is a fraction of that.

A failure to comply with the sexual harassment prevention duty, where no risk assessment has been done and no reasonable steps have been taken, attracts a compensation uplift of up to 25% on top of any tribunal award. A documented risk assessment typically costs less than one day of legal fees.

An incorrect sickness absence policy costs nothing to fix and potentially a great deal to leave in place.

The businesses that will fare best under the Employment Rights Act 2025 are not necessarily the ones with the most resources. They are the ones that take practical, proportionate action now rather than waiting until something goes wrong.

Where Sleek HR Fits In

At Sleek HR, we support small businesses across London and Essex. We offer HR consultancy, inclusive recruitment and DEI advisory services.

We have spent the last few months helping our clients work through exactly the ERA changes described in this post. Our approach is practical and plain-speaking. We tell you what applies to your business, in what order to tackle it, and what it is likely to cost. No jargon and no one-size-fits-all approach.

We have also built a free ERA Compliance Health Check specifically for small business employers. It takes under 10 minutes and gives you a clear picture of where your business is exposed across all six ERA areas.