Employment Rights Act 2025 – Construction Sector Key Developments

Summary

The government has confirmed a six-month qualifying period for unfair dismissal.
While this is not the day-1 protection they initially planned, it still represents a
significant reduction from the previous two-year threshold and materially strengthens
early employment rights for employees. This might be more challenging when it comes to
site or project based employee.

Impact on the construction sector

• Reduced flexibility to terminate short-term, site-based or fixed-term employees
  once they have six months’ service from 1 January 2027 onward. Therefore,
  consideration must be given to onboarding and recruitment from 1 July 2026.
• Construction employers will need stronger onboarding, probation management and
  dismissal documentation for site and project based employees.
• There will be greater risk exposure where performance, conduct or project fit
  concerns are not identified and addressed within the first six months.

Practical steps

• Prepare line managers to manage performance and conduct issues from day one,
  with particular focus on the period leading up to six months’ service.
• Put in place robust probation and fixed-term contract review processes tailored
  to site- and project-based roles, and ensure that they are followed consistently.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour-only subcontractors and
   long-term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment
   law compliance and early-stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into
   tendering, pricing and project planning.

Summary

As of 6 April 2026, the compensation cap for unfair dismissal claims is 52 weeks’
gross pay or £123,543. From 1 January 2027, the compensatory cap for ordinary
unfair dismissal will no longer apply. This significantly increases the potential
value of serious unfair dismissal claims, particularly for higher earners and
specialist staff in high discrimination and whistleblowing awards.

Impact on the construction sector

• Increased financial exposure in unfair dismissal disputes, particularly on
  large projects with senior or specialist staff.
• Greater litigation risk for poorly managed exits or informal site dismissals.

Practical steps

• Support line managers to ensure that performance management, consultation and
  any other formal or informal process is properly documented and supported.
• Make sure that dismissal decision-making procedures are up to date, clear and
  legally robust well before 1 January 2027.
• Factor increased liability into settlement, insurance and dispute-management
  strategies where appropriate.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour-only subcontractors and
   long-term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased
   risk.
4. Train site managers, project leads, line managers and supervisors on
   employment law compliance and early-stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability
   into tendering, pricing and project planning.

Summary

The Act does not itself rewrite the legal tests for worker or employee status.
However, it strengthens enforcement through the Fair Work Agency, brings umbrella
companies within regulatory scope and confirms that the Government will continue
to assess options for improving the employment status framework. In practice, this
is likely to increase scrutiny of labour-only subcontractor, CIS and long-term
contingent labour models.

Impact on the construction sector

• Increased scrutiny is likely for labour-only subcontractors, CIS operatives,
  umbrella arrangements and long-term site-based contractors.
• Existing contractor and labour-supply models may face greater challenge if the
  contractual position does not match day-to-day working practices.
• There is greater exposure to backdated claims and enforcement action in areas
  such as holiday pay, SSP, national minimum wage and pension contributions where
  status has been miscategorised.
• Employers will be under a statutory duty to keep holiday pay and leave records
  for 6 years.

Practical steps

• Ensure contracts and working practices align, particularly around control,
  substitution and mutuality of obligation, as well as with what is actually
  happening on the ground.
• Audit working practices across sites (control, substitution, integration).
• Review long-term contractor engagements.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour-only subcontractors and
   long-term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment
   law compliance and early-stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into
   tendering, pricing and project planning.

Summary

The Act introduces rights aimed at tackling one-sided flexibility, including guaranteed
hours for qualifying zero-hours and low-hours workers, reasonable notice of shifts,
payment for shifts cancelled, moved or curtailed at short notice, and corresponding
rights for agency workers. Most of these changes are expected in 2027, with further
detail to be set out in regulations.

Impact on the construction sector

• Employers will need to offer guaranteed hours to qualifying zero-hours, minimum
  hours and irregular hours workers whose working patterns are sufficiently regular,
  although workers will be able to decline those offers if they wish.
• Workers will gain the right to reasonable notice of shifts and any changes/cancellations
  (with minimum notice periods to be set by regulations).
• Workers will be entitled to compensation for short notice cancellations where they
  reasonably believed they would be working.
• There will be increased obligations around shift planning, notice and compensation
  for short-notice changes to working patterns.
• There will be greater compliance requirements when using agency labour and project-based
  resourcing models. For agency workers, notice obligations will be shared between the
  agency and hirer and cancellation payments must be made by the agency with a recovery
  option from the hirer.

Practical steps

• Forward-plan workforce requirements across projects and carry out greater due
  diligence when using agencies and flexible labour models.
• Review agency contracts, assignment structures and shift-allocation practices.
• Prepare for increased administrative compliance, including record-keeping around
  hours worked, shift notice and cancellations.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour-only subcontractors and
   long-term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment
   law compliance and early-stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into
   tendering, pricing and project planning.

Summary

Some family-friendly and sick pay changes are already in force. From 6 April 2026,
SSP is payable from day one and the lower earnings limit has been removed. Paternity
leave and unpaid parental leave are now day one rights, and paternity leave can be
taken after shared parental leave. Further changes, including unpaid bereavement
leave and stronger dismissal protection for pregnant workers and those returning from
statutory family leave, are expected in 2027.

Impact on the construction sector

• Higher payroll costs and administrative burdens are likely, particularly for SMEs,
  subcontractors and labour-intensive projects.
• Operational challenges managing absence on live projects.
• Greater disruption risk to project delivery timelines.
• Those earning less than the lower earnings limit will be entitled to SSP at a rate
  of 80% of weekly earnings.

Practical steps

• Forward-plan resourcing across projects, budget for increased SSP and family leave
  administration, and review absence reporting, cover arrangements and return-to-work
  processes.
• Ensure contracts and policies are updated to align with the changes.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour-only subcontractors and
   long-term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment
   law compliance and early-stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into
   tendering, pricing and project planning.

Summary

The Act has moved the UK towards a more proactive enforcement model. The Fair Work
Agency was established on 7 April 2026 and can enforce a broader range of rights,
including holiday pay and statutory sick pay. Employers must also keep annual leave
and holiday pay records for at least six years from 6 April 2026, and most employment
tribunal time limits are due to increase from three months to six months in October 2026.

Impact on the construction sector

• There is an increased risk of inspections, civil enforcement action and claims
  being brought over a longer tribunal time window.
• There is greater exposure where holiday pay, SSP, pay, status, working time or
  record-keeping breaches occur.
• Reputational risk where breaches occur on high-profile projects.
• Workers will gain the right to reasonable notice of shifts and any changes/cancellations
  (with minimum notice periods to be set by regulations). Workers will be entitled to
  compensation for short notice cancellations where they reasonably believed they would
  be working.
• The Fair Work Agency will also regulate umbrella companies in the same way as
  recruitment agencies.
• Notices of underpayment can be issued to employers by the Fair Work Agency,
  specifying the amount payable within 28 days. This is combined with a penalty
  of 200% of the sum due, payable to the Secretary of State.
• The Fair Work Agency will be able to bring proceedings on behalf of a worker
  and provide assistance for claims.

Practical steps

• Ensure consistent compliance across all sites.
• Maintain clear records of status, pay and hours.
• Prepare for regulatory scrutiny, longer claim windows and more detailed requests
  for records.

5-Step Employment Rights Act Readiness Plan for Construction Sector Employers

1. Conduct a full audit of workforce models across all sites and projects.
2. Review the employment status of contractors, labour-only subcontractors and
   long-term agency workers.
3. Update contracts, policies and onboarding documentation to reflect increased risk.
4. Train site managers, project leads, line managers and supervisors on employment
   law compliance and early-stage dismissal risks.
5. Factor increased compliance costs, reduced flexibility and greater liability into
   tendering, pricing and project planning.
6. Construction employers should also monitor the 2027 reforms on collective redundancy and fire and rehire. The maximum protective award for failure to collectively consult has already doubled to 180 days’ pay, and a further organisation-wide redundancy threshold is expected to be introduced by regulations. In addition, dismissing and re-engaging employees to impose certain core contractual changes will become automatically unfair in most cases unless a narrow financial-distress exception applies.