The Employment Rights Act 2025 is one of the most significant updates to UK employment law in decades. It sits at the heart of the government’s Plan to Make Work Pay and is designed to improve security, fairness, and protection for millions of workers.
For employers, the instinctive reaction is often defensive. New rules usually mean new risk, more paperwork, and less flexibility. But that framing misses the bigger picture.
This Act raises the legal baseline, and also raises employee expectations. The businesses that respond best won’t be the ones scrambling to stay compliant; they’ll be the ones using this moment to build better workplaces, stronger trust, and deeper alignment with their teams.
This article explains what’s changing, why it matters.
The Employment Rights Act 2025 modernises UK employment law to reduce insecure work, strengthen worker protections, and improve fairness across the labour market.
It was developed in consultation with businesses and trade unions and will be introduced in phases over a two-year period.
Rather than focusing on niche edge cases, the Act reshapes some of the fundamentals of employment. It affects:
One of the most important shifts is how quickly rights now apply.
Statutory sick pay and paternity leave become day-one rights, with the lower earnings limit and waiting period for sick pay removed.
Unpaid parental leave also becomes available from day one, alongside stronger protections for pregnant employees and those returning from maternity leave.
At the same time, the qualifying period for unfair dismissal claims is reduced from two years to six months, and the current cap on compensatory awards is removed.
In practical terms, this means:
Early employment decisions now carry more weight, both legally and culturally.
The Act takes direct aim at insecure working arrangements.
Exploitative zero-hours contracts are being phased out, with new rights to guaranteed hours, reasonable notice of shifts, and compensation for short-notice cancellations. These protections apply to agency workers as well.
It also tightens restrictions on ‘fire and rehire’ practices, making dismissals for refusing certain contractual changes automatically unfair in most circumstances, unless a business is in genuine financial distress with no viable alternative.
For employers, the implications are clear:
Flexibility hasn’t disappeared altogether, but casual, unstructured flexibility is now a liability.
Some of the most far-reaching changes relate to behaviour and workplace culture.
Employers will be required to take all reasonable steps to prevent sexual harassment, rather than simply reasonable ones. While all reasonable steps are not specified in the legislation, this is likely to include improved training and assessment, and clear reporting and complaints procedures.
New obligations also apply to harassment by third parties, such as customers or clients.
Whistleblowing protections are extended to those raising concerns about sexual harassment, and NDAs that attempt to silence workers about harassment or discrimination will be void.
Larger employers will also be required to publish action plans addressing gender pay gaps and menopause support.
Together, these changes send the clear message that culture is no longer a ‘soft’ issue. How people are treated, and how their concerns are handled, now carries explicit legal consequences.
On the surface, the Employment Rights Act is about legal protection. In reality, it reshapes the psychological contract between employers and employees.
Raising the legal floor does two things at once:
Companies that focus solely on minimum compliance may stay out of trouble, but they’re more likely to struggle with retention, engagement, and trust.
Security helps, but that alone doesn’t create commitment. The differentiator will be what sits above that legal baseline and separates a forward-thinking employer from the rest.
This moment is similar to pay transparency legislation. The law sets a minimum standard, but it doesn’t create trust on its own.
Companies that already value fairness and clarity aren’t waiting to be forced into better practices, they’ve moved ahead because openness and fairness around pay is the right approach. The Employment Rights Act 2025 works the same way.
Compliance is the baseline. What matters is what you build on top of it.
The strongest responses to the Act go beyond policy updates and focus on experience.
First, clarity becomes non-negotiable. Clear contracts, defined roles, transparent progression paths, and consistent performance processes all reduce risk while building trust. Employees want to understand how those decisions are made.
Second, benefits need to reflect real life, not just policy documents. The Act strengthens baseline rights around sick pay, family leave, and flexibility, but employees will judge companies on how those rights are experienced day to day.
Support during illness, caregiving, or major life events increasingly shapes how people feel about their employer.
Third, security without opportunity still leads to disengagement. While the Act reduces downside risk, it doesn’t address ambition, growth, or long-term motivation.
People continue to leave organisations where effort feels disconnected from outcomes.
That’s why many businesses are looking beyond short-term perks and bonuses, and towards incentives that reward contribution over time.
Employee share schemes are not a replacement for appropriate pay or core benefits, but they can play a meaningful supporting role.
When designed well, share schemes:
They work best when they’re clearly communicated, inclusive by design, and positioned as part of a broader benefits strategy rather than a substitute for competitive pay.
In a world where employees are better protected in the short term, long-term alignment becomes a genuine differentiator.
The new Employment Rights Act will be rolled out in phases through 2026, giving employers time to prepare. The wise ones won’t wait.
Now is the moment to:
The Act isn’t just about avoiding risk. It’s an opportunity to build the kind of workplace people actively choose to stay in, even when they don’t have to.
Book a call with Vestd to see how employee share schemes can turn team members into true advocates of the business, genuinely invested in its success.