I’ve always enjoyed our annual employment law update with RWK Goodman as part of my role as Vice Chair of the local CIPD branch. It’s usually a useful reminder of what’s coming, what’s changed, and what HR teams need to watch out for. But this year felt different.
With more than 120 HR professionals dialling in, our biggest turnout yet, it was clear that the Employment Rights Act 2025 isn’t being seen as “just another update”. There was a shared sense in the room that this legislation will reshape the economics of employing people in the UK more than any single piece of legislation in the last decade.
Most HR teams will (rightly) focus first on compliance, but for reward leaders, stopping there would be a mistake. ERA 2025 doesn’t just change processes; it reshapes the underlying cost architecture of the workforce, with material implications for pay strategy, workforce planning, absence costs and reward governance. Reward teams must therefore translate legal change into financial and workforce insight, helping their organisations adapt early and avoid unintended consequences.
Structural change, not policy tweaks
From neonatal leave and restrictions on fire and rehire, through to expanded paternity rights and the significant April 2026 reforms, including SSP payable from day one, removal of the Lower Earnings Limit and broader leave entitlements – statutory pay and leave are undergoing deep structural change.
In practical terms, this means higher baseline employment costs become unavoidable. For organisations with large frontline or part‑time populations, SSP changes alone can materially shift cash flow and margins. What used to be a manageable absence assumption becomes a predictable and ongoing cost. The Government’s impact assessment for SSP reform under the Employment Rights Act 2025 states:
- £450 million per year additional cost to employers
- £15 per employee per year on average
- Around 1.3 million additional workers brought into SSP eligibility
Reward teams are already starting to see how this plays out. Entry‑level jobs that once sat clearly above statutory pay suddenly feel uncomfortably close to it. Pay differentials narrow, compression increases, and long‑standing relativities start to erode. Trying to “hold the line” with small annual uplifts quickly stops working.
This is where a reward lens really matters. Instead of reacting with blanket pay increases, organisations are beginning to rethink pay structures altogether, clarifying where progression happens, where differentiation genuinely adds value, and where non‑cash levers such as skills allowances or fixed supplements can be used to protect fairness without permanently inflating base pay.
Critically, budgeting needs to move on too. Modelling statutory changes one by one is no longer enough. Reward teams need joined‑up, multi‑year cost models that look at National Minimum Wage, SSP changes, leave take‑up and workforce mix together. Annual fixes simply won’t keep pace with multi‑year reform.
Variable labour under pressure
ERA 2025 also brings significant reform to zero‑hours working, rights to request predictable working patterns and the way shifts are allocated. For organisations that rely on flexibility: retail, hospitality, logistics, care… this goes straight to the heart of how labour is deployed.
Overtime costs, premium rates, allowances and scheduling models are all affected. More predictability for workers often means less flexibility for employers, which can push more hours into guaranteed contracts or drive higher use of premiums to cover peaks.
From a reward perspective, this creates both cost and fairness risk. Two people doing similar work but accessing hours differently can quickly raise questions around equity, transparency and consistency. Scenario modelling becomes essential, not just to understand cost volatility, but to stress‑test where perceived unfairness might show up first.
Some organisations are already responding by simplifying patterns, reducing reliance on ad‑hoc overtime and building clearer rules around access to hours and premiums. Others are creating small pools of “flex cover” roles to absorb predictable absence and leave rather than relying on last‑minute fixes.
Transparency, voice and scrutiny
Alongside these cost changes, the direction of travel on worker voice and transparency is unmistakable. Expanded trade union rights, increased consultation duties and growing expectations around parental leave and flexibility all point to a system where organisations must be able to explain, clearly and consistently, how decisions are made.
For reward teams, this raises the bar on governance. Job evaluation stops being a “nice to have” and becomes essential infrastructure. Pay decisions need to be defensible on paper, not just reasonable in principle. Documentation, audit trails and clear line‑of‑sight from role value to pay outcome matter more than ever.
This is particularly important as April 2026 brings changes to SSP, sexual harassment protections, unfair dismissal and collective redundancy rules. These reforms increase exposure to challenge, raise absence‑related costs and make workforce change more complex. Where pay intersects with absence, adjustments, redeployment or redundancy, reward sits squarely at the centre of both cost and risk.
The Fair Work Agency changes the game
Perhaps the most underestimated shift is the introduction of the Fair Work Agency from 2026. This isn’t a cultural initiative; it’s a regulatory one. The focus is on fairness, consistency and transparency, with organisations expected to show their working.
That has real implications for reward. Pay frameworks need structure, data needs to be accurate and explainable. Decisions need to evidence how outcomes were reached, not just that they feel fair. Organisations without clear pay architecture or robust governance will find this uncomfortable very quickly. Add to this the growing focus on gender pay, menopause plans and broader fairness reporting, (voluntary from 2026 and mandatory for larger employers from 2027) and the expectation is clear. Reward teams will be accountable not just for the numbers, but for the story behind them and the actions that follow.
This isn’t business as usual. The Employment Rights Act 2025 marks the start of a multi‑year transformation in how pay is designed, governed and justified. This isn’t about keeping policies up to date; it’s about rethinking how reward supports workforce sustainability in a more regulated, transparent environment.
Reward leaders who act now, by focusing on forward‑looking cost models, scenario‑planning working pattern reforms, tightening governance and aligning closely with Finance and Legal, will be better placed to manage cost, protect fairness and maintain agility.
Those who wait risk being hit by sudden cost shocks, eroded pay structures and increased regulatory scrutiny.
If you don’t have the infrastructure to model the impact, or your workforce is particularly exposed, Innecto can help. We support organisations to use insight and evidence to strengthen job architecture, reward governance and workforce decisions, future‑proofing reward in the face of ERA 2025 and beyond.
Get in touch with the team or contact me directly: holly.coe@innecto.com.
