What should charities be doing now given the forthcoming changes to employment law?

The Employment Rights Act 2025 is the most significant overhaul of UK employment law in decades. For charities, many of which rely on diverse employment models, grant‑funded posts, short‑term contracts, part‑time workers, and zero‑hours arrangements, the act introduces major compliance, financial, governance, and operational challenges.

Given the sector’s mix of permanent staff, project‑funded roles, sessional workers, ‘volunteers’ with worker rights, and casual or low‑hours employees, now, while consultations are ongoing, is the time to audit contracts, handbooks, HR policies, and governance frameworks.

Unfair dismissal rights

From 1 January 2027, staff will need only six months’ service (rather than two years) to claim unfair dismissal. Furthermore, the maximum cap on compensation is being removed. That means that staff who start work this summer, and whose effective date of termination is on or after 1 January, will be covered by the new regime, and charities will face much larger claims if things go wrong.

It will also be harder to settle claims brought by higher paid members of staff where the potential compensation may be significant (perhaps where years of loss is foreseeable), although the fact that claims may have a higher value may mean that, on occasion, a pay out can be made at a level which cannot currently easily be justified (if at all) as in the charity’s best interests, but which might become possible if litigation is in prospect.

Given that many trustees already express concern that six months is not long enough to assess performance, charities should review probation periods, dismissal processes, capability policies, and manager training. Because all staff will soon be able to claim unfair dismissal after six months of service, even short‑service performance issues may become costly if processes are not watertight. Charities will need to implement far more robust recruitment, induction, and probation processes.

Casual contracts

The charity sector relies heavily on flexible staffing such as project workers, outreach staff, sessional workers, zero‑hours workers, bank staff, or events staff. There are also  ‘volunteers’ who may in practice have become workers. All of these staff may either have increased rights or, even if that is not the case, may think they have (for example those who are genuinely volunteers but who think otherwise).

The act introduces rights to request guaranteed hours, minimum notice of shifts, and compensation for cancelled work. This means charities should audit their casual workforce arrangements now, as these patterns will attract increased compliance obligations and potential liability.

Where funding cycles are uncertain, charities may need to rethink how short‑term staffing is structured.

Sexual harassment

From April this year, disclosures of sexual harassment have become explicitly protected under whistleblowing law. More significantly, from October 2026, the act will require employers to take ‘all’ reasonable steps to prevent sexual harassment.

Charities frequently work with service users, beneficiaries, donors, volunteers, and members of the public, and under the act, employers will be liable for harassment of staff by any third party (and in relation to any protected characteristic), unless they can show they acted comprehensively to prevent it.

These changes require a review of:

• safeguarding frameworks;
• training;
• reporting systems;
• volunteer management;
• escalation routes;
• and where necessary, confidentiality clauses.

Further, most confidentiality clauses (NDAs) preventing staff from raising or discussing allegations of discrimination or harassment will become void. This may increase publicity risk and complaints.

Fire and rehire

With financial pressures across the charity sector, including squeezed grant funding, rising staff costs, and restricted‑use funding pots, now is the moment to consider whether any restructuring might be needed before the new regime fully applies.

‘Fire and rehire’ refers to the practice of dismissing staff and re‑employing them on new (usually less favourable) terms where agreement cannot be reached. Historically, charities have used this sparingly, often during funding crises or reorganisation.

Under the act, dismissing an employee for refusing changes to core contractual terms becomes automatically unfair unless the charity is in severe financial difficulty.

This exception will be narrowly applied. To rely on it, a charity will need to show:

• serious, verifiable financial distress;
• exploration of all alternative options; and
• a full and fair consultation process.

Strengthened Statutory Sick Pay (SSP)

From April 2026, SSP will also change and will be paid from day one of absence, as well as apply to low‑income employees previously below the earnings threshold. Charities with lean budgets must factor in potentially higher absence‑related costs.

Conclusion

All of these changes will increase the administrative burden for smaller charities as there will need to be enhanced record‑keeping, as well as new processes, including for sick pay, parental leave, flexible working, dealing with harassment, and recruitment and performance assessment. Smaller charities may struggle to keep pace, especially with simultaneous fundraising and service‑delivery pressures.

Against this background charities should consider undertaking risk assessments to map current policies against the requirements of the act, and reviewing recruitment and probation processes in anticipation of day‑one unfair dismissal rights. It is also worth auditing zero‑hours and casual worker arrangements.

Safeguarding frameworks should also be reviewed to meet the ‘all reasonable steps’ duty.

There are multiple consultations ongoing in relation to various aspects of the act and trustees should keep abreast of these consultations so that they are properly informed about the law, as it will affect their charities.