Words: Matt Baker

Independent retailers are preparing for what employment law specialists are describing as one of the biggest shifts in workplace regulation in decades. The Employment Rights Bill 2025 aims to strengthen worker protections, reform contract practices, and improve job security across the UK.

The Bill is currently moving through the House of Lords, with final approval and Royal Assent expected by the end of the year. The Government’s roadmap suggests that consultations will continue into 2026, with most of the major reforms – such as day-one rights and zero-hours changes – likely to come into effect from 2026 to 2027.

For retailers, the focus now should be on understanding what’s coming and making sure existing employment practices won’t fall foul of the new requirements once they arrive.

The broad aim of the legislation is to rebalance employment relationships, giving workers greater security, but business owners should be aware of possible consequences like more paperwork, tighter procedures and less flexibility.

Key changes

The most significant reform for retailers is the introduction of day-one unfair dismissal rights. Under current rules, employees must work for two years before they can make an unfair dismissal claim. The new Bill removes that threshold, meaning every employee will be protected from their first day of employment.

To manage this, the Government plans to introduce an “Initial Period of Employment” (IPE), expected to be around nine months, where employers can still dismiss staff fairly using a lighter procedure. That process will likely include a meeting with the employee, the right to be accompanied, and a clear reason for dismissal related to performance, conduct or another legitimate ground.

Redundancy, however, will not fall under the lighter process. This reform will have major implications for smaller retailers who rely on quick staffing decisions or probationary dismissals. It will no longer be possible to dismiss a new hire informally, so clear record-keeping, written procedures and consistent performance reviews will become more important than ever.

Another headline reform is the extension of Statutory Sick Pay (SSP) and family-related leave – including parental, paternity and bereavement leave – to become day-one rights. The minimum earnings threshold for SSP is also being removed, meaning all staff, including part-time or lower-paid employees, will qualify. For retailers who employ flexible or junior staff, this may result in higher short-term costs during absences.

Changes to zero-hours contracts will also affect many small businesses. The Bill seeks to curb what it calls “exploitative” arrangements by giving workers the right to a contract that reflects the hours they regularly work, based on a 12-week reference period. Retailers will need to provide reasonable notice of shift changes and compensate staff if shifts are cancelled or shortened at the last minute.

There have been suggestions of a softer approach, where workers could request guaranteed hours instead of being automatically offered them, but these proposals are still under consultation and are not currently government-backed.

Either way, the flexibility that small retailers rely on to cover busy periods, installations or seasonal changes is likely to be reduced. Keeping accurate records of average hours worked will be vital in managing future staffing obligations.

The Bill also introduces stricter rules around fire and rehire practices. It will become automatically unfair to dismiss staff for refusing contract changes related to pay, hours, holiday entitlement or pensions.

Employers will be able to defend such dismissals only in cases of genuine financial distress, where contract changes are necessary to keep the business running. Retailers are being encouraged to review their existing employment contracts now to ensure that variation clauses, allowing for reasonable changes, are in place and compliant.

A further major change is the creation of a new Fair Work Agency, which will consolidate and strengthen enforcement powers currently divided between HMRC, the Gangmasters and Labour Abuse Authority, and the Employment Agency Standards Inspectorate.

This single body will have authority to inspect workplaces and enforce minimum wage and holiday pay compliance. There would be powers to issue a notice of underpayment on an employer for underpaying certain statutory payments, which can include a penalty of 200% of the sum owed, up to a maximum of £20,000 per individual involved.

For small retailers that handle payroll and HR in-house, this marks a move toward closer scrutiny and less tolerance of administrative mistakes. Keeping accurate records and ensuring contracts and pay structures align with legislation will become increasingly important.

Finally, the Bill strengthens trade union rights, allowing workplace access for union representatives and requiring employers to inform staff of their right to join a union.

It also builds on existing flexible working laws by making flexibility the default position. Employees will be entitled to request flexible working from day one, and employers will need to provide reasonable, evidence-based justifications if they refuse.

Preparing your business

Although many of the measures will not come into force until late 2026 or 2027, it’s clear that small businesses will need to make cultural as well as procedural adjustments. The KBB sector in particular, where small teams and variable workloads are the norm, will feel the effects of greater rigidity in employment law.

Retailers should begin by reviewing employment contracts, staff handbooks and probation processes to ensure they meet the anticipated requirements of day-one rights. It will no longer be enough to dismiss underperforming staff informally, so written procedures, clear records of meetings, and proper documentation will be key.

Zero-hours workers should be reviewed carefully. Keep track of hours worked over a rolling period to identify those who might soon be entitled to guaranteed-hours contracts. Consider whether a more consistent scheduling model could reduce future risk, even if it means slightly higher baseline staffing costs.

It’s also advisable to budget for increased costs associated with day-one sick pay and leave entitlements. Even short absences could trigger statutory payments where they previously did not. Meanwhile, ensure contracts include appropriate variation clauses so that legitimate business changes can still be made without breaching the forthcoming “fire and rehire” restrictions.

Once the Fair Work Agency is established, enforcement may become more visible and proactive. Retailers should therefore assume that compliance checks may occur without prior complaint. Payroll accuracy, timely payment of holiday pay, and proper handling of sick pay will be essential.

In the coming year, further consultation and detailed regulations will clarify how these new rules are applied, including exactly how the Initial Period of Employment will operate and how compensation for cancelled shifts will be calculated.

Sum and substance

The Employment Rights Bill represents a rebalancing of the UK’s workplace system. For employees, it promises more security and transparency; for employers, it brings new obligations, less flexibility and potentially higher costs.

For retailers, this means adjusting to a culture of compliance where informal or ad hoc approaches to staffing will no longer be sufficient. Preparing early – by tightening documentation, improving record-keeping and understanding the new rights – will be essential to avoid disruption later.

The legislation may still evolve as it completes its passage through Parliament, but its direction is clear. When the Bill becomes law, every job will carry more rights from day one, and employers will be expected to have the systems in place to meet them.

As consultations continue and guidance around the Bill develops over the next year, you will find more information via the UK Parliament website www.parliament.uk.