Latest impact assessment finds legislation will only cause ‘modest increase’ in employer costs following U-turn on day-one protection from unfair dismissal
9 January 2026
The watering down of reforms included in the Employment Rights Act will reduce its financial burden on businesses by 4bn a year, government analysis has found.
According to its latest economic analysis, published on Wednesday, the legislation will lead to an estimated direct cost to businesses of 1bn a year once fully implemented.
This represents a significant reduction from the initial 5bn increase in annual costs estimated in the government’s October 2024 assessment.
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The government’s U-turn on a proposed day-one right to unfair dismissal has helped to bring down the estimated costs to businesses. This has been replaced with a six-month qualifying period.
The government’s latest analysis found that the legislation would cause “no more than a modest increase” in total employment costs for businesses, and deemed risks to hiring and overall employment to be “relatively low”.
However, Kate Shoesmith, director of policy at the British Chambers of Commerce, has warned that the revised figures could be underestimating the impact the changes will have on businesses.
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