Monthly Bulletin – January 2026 – Practical Perspectives

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Keeffe & Associates Ltd

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Employment Rights Act 2025: The key employment law changes employers need on their radar

After months of parliamentary debate, the Employment Rights Bill has finally cleared the House of Lords and gained Royal Assent on 18th December 2025. It has now become the Employment Rights Act 2025 (ERA 2025) – a landmark reform that will reshape UK employment law over the coming years.

While many of the changes will not take effect immediately, employers should now be clear on the direction of travel. The focus should shift from what might happen to how and when to prepare.

The two changes employers are watching closely

Two late amendments made during the Bill’s final passage are particularly significant.

First, the qualifying period for ordinary unfair dismissal will reduce from two years to six months, rather than being removed entirely. This change is expected to take effect from January 2027.

Second, and potentially more impactful, the compensation cap for unfair dismissal — currently the lower of one year’s salary or £118,223 — is expected to be abolished, subject to the Government completing and publishing an Impact Assessment. If confirmed, this will substantially increase litigation risk and exposure for employers.

A phased introduction

ERA 2025 will be implemented gradually under a government roadmap.

The only immediate change following Royal Assent has been the repeal of the Strikes (Minimum Service Levels) Act 2023.

Further industrial relations reforms will follow two months later, including simplified industrial action ballots and notices, stronger protection against dismissal during strikes, and the repeal of much of the Trade Union Act 2016.

From April 2026, employers will start to see more practical, day-to-day changes, such as:

Day-one rights to paternity leave and unpaid parental leave
Reformed Statutory Sick Pay (no waiting days or lower earnings limit)
Expanded whistleblowing protection, including sexual harassment complaints
Higher penalties for collective redundancy failures

Additional reforms are planned for October 2026, including tighter controls on fire-and-rehire practices, stronger rules on tips, expanded trade union rights, and a new duty to take “all reasonable steps” to prevent sexual harassment.

Beyond that, 2027 is expected to bring the aforementioned unfair dismissal changes, reforms covering flexible working, bereavement leave, protections for pregnant workers, restrictions on zero-hours arrangements, and regulation of umbrella companies.

What should employers be doing now?

For unionised employers, the priority is understanding the imminent changes to industrial action rules and reassessing risk and response planning.

For non-unionised workplaces, preparation should focus on:

Reviewing contracts, variation clauses and probationary provisions
Strengthening probationary processes ahead of the six-month unfair dismissal threshold
Training managers on upcoming rights and obligations
Planning policy updates for family leave, sickness absence and harassment
Auditing payroll and benefits systems in light of SSP reform

The takeaway

ERA 2025 is not a single moment of change but a rolling programme of reform. Employers that start planning early – rather than waiting for implementation dates – will be best placed to manage risk, cost and disruption as the new framework takes shape.

New rates for sick pay, family leave and national minimum wage from April 2026

The Government has set out its proposed new statutory rates for statutory sick pay and family leave pay to apply from 6th April 2026.

	Old Rate	New Rate
Statutory maternity pay	£187.18 per week	£194.32 per week;
Statutory paternity pay	£187.18 per week	£194.32 per week
Statutory shared parental pay	£187.18 per week	£194.32 per week
Statutory adoption pay	£187.18 per week	£194.32 per week
Statutory parental bereavement pay	£187.18 per week	£194.32 per week
Statutory neonatal care leave pay	£187.18 per week	£194.32 per week
Statutory sick pay	£118.75 per week	£123.25 per week

The average gross weekly earnings required to qualify for the various forms of family leave pay is proposed to increase from £125.00 or more per week, to £129.00 or more per week from 6^th April 2026.

These changes sit alongside the proposed changes to national minimum wage which, if approved, will take effect from 1^st April 2026:

Category	Rate;
Aged 21 and above	£12.71 per hour
Aged 18-20	£10.85 per hour
Aged under 18 (but above compulsory school leaving age)	£8.00 per hour
Apprentices aged under 19	£8.00 per hour
Apprentices aged 19 or over but in the first year of their apprenticeship	£8.00 per hour
Accommodation offset	£11.10 per day

Workplace Investigations

A well-executed workplace investigation is the bedrock of any fair and defensible disciplinary or grievance outcome. When investigations are rushed, poorly planned, or inadequately documented, the entire process can unravel – exposing employers to legal and reputational risk. HR professionals know that getting this stage right is essential, yet it remains one of the most common areas where organisations fall short. Below are practical tips to help ensure your investigations are robust, fair, and capable of withstanding scrutiny.

Protect confidentiality from the outset
Make confidentiality a priority. Limit information to those who genuinely need to know and remind all participants – including witnesses – of their duty to keep details private. This not only protects the integrity of the process and avoids contamination of evidence through ‘leaks’ but also helps maintain trust across the workforce.
Have a clear plan before you begin
A structured plan guides the investigator and prevents drift. Identify the allegations, the scope of the investigation, who needs to be interviewed, and what evidence is required. A clear roadmap ensures consistency and reduces the risk of missing key information
Take the time you need
While investigations should be handled without unnecessary delay, avoid rushing. A thorough investigation requires time to gather evidence, interview witnesses, and reflect on findings. Hasty conclusions are more likely to be challenged and overturned.
Be Impartial – perception matters
Choose an investigator who is independent of the situation and free from any conflict of interest. Impartiality is crucial not only for fairness but also for how the process is perceived by employees. If neutrality is in doubt, the credibility of the outcome will suffer.
Keep meticulous documentation
Accurate, contemporaneous records are essential. Document every step: evidence reviewed, interviews conducted, decisions made, and the rationale behind them. Clear documentation creates a defensible audit trail and supports transparency if outcomes are later scrutinised.
Conduct interviews fairly and sensitively
Treat every participant with respect. Ask open, neutral questions, avoid assumptions, and give individuals the opportunity to provide their version of events. Fairness during interviews helps ensure reliable evidence and fosters confidence in the process.

A disciplined, thoughtful approach to workplace investigations pays dividends. By embedding these principles, HR professionals can help ensure outcomes that are fair, transparent, and resilient under challenge.

Understanding employment status in the UK

Employment status determines the rights and protections an individual has at work. In the UK, there are three main categories: employees, workers, and the self-employed. Each has different entitlements. There is also a distinct framework for agency workers. Getting status right is essential, as rights cannot be contracted out of or waived.

Employees

Employees have the fullest set of employment rights. To qualify, there must be mutual obligations: the employer must provide work, and the individual must perform it personally. Employees benefit from protections including:

Statutory sick pay and maternity, paternity and shared parental leave
Minimum notice periods and the right not to be unfairly dismissed (after two years)
Redundancy pay
Paid annual leave
Protection from discrimination and detriment
TUPE rights during business transfers

Employees also have protection against unlawful deduction from wages and the right to an itemised payslip.

Workers

Workers sit between employees and the self-employed. They perform work personally but without the full obligations of employment. They are entitled to:

National Minimum Wage
Paid annual leave
Rest breaks and limits on working time
Protection from discrimination
Protection from unlawful wage deductions

Workers do not have rights such as unfair dismissal, redundancy pay, or family leave (unless contractually agreed).

Self-employed

Self-employed individuals run their own business and take on financial risk. They have very limited statutory rights, generally only:

Protection from discrimination (in limited circumstances)
Health and safety protections when working on a client’s premises

They do not have paid holiday, minimum wage rights or protection from dismissal.

Agency Workers

Agency workers are supplied by a temporary work agency to end-user businesses. After 12 weeks in the same role, they gain rights under the Agency Workers Regulations 2010, including:

Equal treatment on basic working conditions (pay, annual leave, working time)
Day-one access to collective facilities (canteens, childcare, transport)

Agency workers do not gain employee or worker status with the hirer unless the working relationship genuinely supports this. They are usually employed by the agency.

Drafting a discretionary bonus scheme: Key pointers for HR

Discretionary bonus schemes can boost motivation and performance, but if the rules aren’t clearly set out, they can quickly lead to disputes, costly claims and employee frustration. The key is balancing flexibility with clarity.

Be clear on how discretion works

Leaving bonus decisions entirely open may seem appealing, but it increases the risk of allegations of unfairness or bias. A better approach is to outline the broad factors that may be considered – such as company, individual and team performance – while still keeping discretion overall.

Joining and leaving mid-year

Eligibility is often where problems arise. For new starters, options include:

excluding them until the next bonus year
allowing immediate entry with pro-rating
linking eligibility to successful probation

Whichever approach you take, make it explicit.

The same applies when employees leave part-way through a bonus year. Employers can exclude leavers altogether, offer pro-rata payments only for “no-fault” departures (e.g. redundancy or ill-health), or pay pro-rata bonuses to all. The Clark v Nomura case shows the danger of vague drafting: without clear wording, the employer was forced to pay a full bonus even after the employee resigned.

Other circumstances to consider

Think beyond starters and leavers. Do you want the ability to withhold or defer payment where an employee is suspended or under investigation? In some sectors, investigations can take months, so having this option can be crucial.

Get the basics right

Make sure your scheme clearly sets out:

the bonus year dates
when entitlement is lost (e.g. on giving notice or on termination)

Ambiguity in either area invites challenge.

Clawback and deferral

Clawback provisions can protect the business where a bonus has been paid but later needs to be recovered. To maximise enforceability, include clawback wording in employment contracts and ensure employees agree to the terms. Deferring bonus payments over time can also provide more control.

The takeaway

A well-designed bonus scheme doesn’t need to be complex – just clear. Thoughtful drafting, defined rules, and careful documentation give employers flexibility while reducing the risk of disputes and claims.

Monthly Bulletin – January 2026 – Practical Perspectives