Payroll Priorities for 2026: The Employment Rights Bill Countdown
The long-awaited Employment Rights Bill (ERB), set to bring the biggest overhaul of UK employment law in decade, has returned to the House of Lords for what could be its final stage. After reviewing Commons amendments on 28 October, the Bill is once again moving between the two Houses in the familiar “ping-pong” process.
For payroll, HR, and finance professionals, this stage is critical. The final version of the Bill will directly shape payroll configurations, cost forecasting, and compliance obligations for years to come.
What the Bill Aims to Do
The ERB is designed to expand and modernise workers’ rights. The key proposals include:
Day-one protection from unfair dismissal, removing the current two-year qualifying period.
Reform of statutory payments, including sick pay and parental leave (with no lower earnings limit and pay from day one of sickness).
Tighter restrictions on “fire and rehire” practices.
Wider trade union and collective bargaining rights.
New obligations on gender pay reporting, menopause support, and protections for pregnant employees.
Where Things Stand
Introduced in October 2024, the Bill has cleared the House of Commons and is being refined through the Lords’ review process.
This back-and-forth over amendments has slowed progress, but Royal Assent is expected by late 2025.
Implementation will roll out in stages, with most core reforms expected in 2026, and further measures (such as tipping and harassment protections) arriving later.
Some provisions still depend on upcoming consultations, including details on how “day-one” dismissal rights will operate in practice.
The Financial and Operational Battleground
The ongoing debate reflects a struggle to balance stronger worker protections with employer flexibility and cost management. For payroll providers and employers alike, the eventual outcome will determine key system, process, and budgeting changes.
Policy Area |
Government / Commons View |
Lords’ Position |
Impact if Commons’ Version Passes |
|---|
| Day-One Rights to Unfair Dismissal | Full rights from day one (no qualifying period). | Six-month qualifying period proposed. | Increased exposure to early dismissal claims. Payroll and HR systems will need to capture probation tracking and performance records from day one. |
| Zero-Hours Contracts | Employers must offer a guaranteed hours contract to qualifying workers. | Lords propose an “opt-out” option for workers. | Potential rise in wage costs and reduced flexibility in scheduling. Payroll will need to handle guaranteed minimum hours and pay even during quiet periods. |
| Statutory Sick Pay (SSP) | Remove Lower Earnings Limit and waiting days (pay from day one). | Broad support but concerns about cost to SMEs. | Increased sick pay costs, especially for lower-paid staff. Payroll software must update rules for eligibility and waiting periods. |