Six in ten UK businesses still believe it will have a negative impact on businesses in the UK
Manchester, England – UK businesses are better prepared for the Employment Rights Act 2025 (ERA) than they were this time last year, but the latest research from Peninsula suggests that increased familiarity has not translated into confidence.
The survey of 519 UK business owners, senior leaders and decision makers found that 73% are familiar with the Act, but only 47% feel very or completely prepared. Just 15% say they feel completely prepared.
Negative sentiment remains dominant. In 2025, 68% believed the Employment Rights Act would have a negative impact on businesses in the UK. In 2026, 60.5% continue to hold that view. Only 11.9% now believe the Act will have a positive impact on businesses in the UK, down from 14% in 2025.
The biggest concern is the proposed reduction in the qualifying period for unfair dismissal claims, with more than half of all businesses surveyed (53%) seeing it as a negative change. One in 4 rate it as a ‘major’ or ‘critical’ risk, rising to 44.4% in the retail industry and 37% in Scotland.
One respondent said, “For a small business the amount of changes feel overwhelming, there does not appear to be any kind of balance in relation to changes being implemented. It feels like it’s heavily driven towards the rights of the employee without any due consideration of what real impact these changes will have on businesses. The right to claim unfair dismissal after 6 months is, from my point of view, a blocker to even considering hiring someone.”
Enhanced protection against sexual harassment remains the most positively viewed measure, although positive sentiment has fallen from 58% in 2025 to 45.1% in 2026. Day-one paternity leave and unpaid parental leave fell from 31% positive to 24.5%, while the changes to zero-hours contracts fell from 25% positive to 19.2%.
The survey also highlights a significant ownership gap. Business owners were 2.3 times more likely than senior leaders to feel unprepared for the Act and more likely to view its impact negatively, reflecting their direct responsibility for legal compliance, cost and business risk.
While 82% of businesses have started preparing, the research suggests that preparation has not allayed concern. Businesses continue to identify policy updates, administration, increased operating costs and the potential impact on recruitment as key challenges.
One respondent said, “Recruitment is tough enough as it is. Despite strong processes in place, we’ve had some bad experiences over the last year. There are occasions where people have significantly over-stated their knowledge and experience, some day one rights may make this more challenging to handle.”
The hospitality sector is the most concerned about the impact of the ERA, with 89.2% of respondents expressing negative sentiment. Construction has the highest sector-level unprepared rate at 14.3%, while the Northeast is the most prepared region at 69.7%.
The survey indicates that businesses have moved from anticipating the legislation to managing its practical consequences. Concern about the additional risk of hiring new employees has fallen from 60% in 2025 to 44.1% in 2026, while concern about higher operating costs has fallen from 71% to 46.9%. Concern about the number of changes has also fallen, from 66% to 49%, and concern about the increased administrative burden from 66% to 45.4%.
Despite these falls, the cost of statutory rights remains a significant issue. 35.9% of employers say the increased cost of statutory rights pose a major or critical risk to their business, including 22.3% who rate it a major risk and 13.6% who rate it critical.
“Massive impact immediately with the sick pay changes. One staff member injured themselves whilst on holiday. I had to pay their sick pay for 6 weeks recovery and, because they are a flexible worker who had done more cover shifts before their holiday I actually had to pay them more than I would have done if they were to return to their usual shift pattern.” – survey respondent
Kate Palmer, Chief Operations Officer at Peninsula, said: “The survey shows that businesses are moving from awareness to action, but many still lack the confidence that they have everything in place. The challenge is not simply understanding the reforms. It is translating them into contracts, policies, manager training, payroll and absence systems, recruitment processes and accurate records.
“And the sheer volume of changes and consultation periods required to bring each of the 173 individual pieces of legislation contained within the Employment Rights Act 2025 mean that businesses are continuously having to revise all their policies and documentation as each change takes effect. This is overwhelming for many, especially small business owners without dedicated HR teams.
“One respondent told us ‘There are many changes for businesses to protect employees, but few to protect employers. I understand people get treated badly in big corporations, but in small businesses like ours, it can be a massive problem,’ while another said, “I’m a very small business; the cost and impact of these changes could have a huge effect on my business.’”
“Businesses should not wait for every deadline to approach before reviewing how they manage people. Early preparation will give employers more time to identify gaps, train managers and make fair, consistent decisions as the new rules take effect.”
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The survey was an independent online survey of 519 UK business decision makers conducted in September 2026. Respondents included 220 senior leaders, 190 business owners and 109 other decision makers, covering 12 UK regions, 19 industry sectors and seven business-size bands.
The 2025 comparison survey included 577 respondents and used the same questions. Download the full report HERE
