Navigating the Employment Rights Act: What it means for the Construction sector

June 4, 2026 11:30 am, Published by

The Employment Rights Act (ERA), introduced in December 2025 and being phased in across 2026 and 2027, represents a major shift in UK employment law. It strengthens workers’ rights, promotes transparency and accountability, and aims to improve job security. For the construction sector – long reliant on flexible labour such as agency staff, contractors, and zero-hours workers – these reforms present significant operational, legal, and cultural changes.

What are the key changes?

Employment status – The construction sector has the highest level of self-employed jobs across the entire economy (16.7%), with 674,000 self-employed construction workers registered in 2022. Part of the Government plan is to make changes to the employment status by creating a single status of “worker” as opposed to the three tiered current status (worker, employee, self-employed). Some employers misclassify their workers as self-employed in order to pay less tax and deny them rights.  The proposed government changes to the employment status would be significant as it would extend employment rights and give workers the chance to make the most of the new protections enshrined in the ERA. Consultations are expected to be announced over this proposal.

Reduced Flexibility and Workforce Changes  – A key reform of the Act is the restriction on zero-hours contracts and tighter regulation of agency work. Employers will be required to offer guaranteed hours reflecting a worker’s actual working pattern over a set reference period. Construction firms will need to monitor hours closely and rethink workforce planning strategies while budgeting adequately for an increase in costs.

In addition, workers must receive “reasonable notice” of shifts. Where shifts are cancelled or changed at short notice, compensation may be payable. This requires the sector to rethink its way of responding to changing project demands and urgent labour needs. While the Act limits flexibility, it may drive new approaches to workforce planning and provide greater stability for the workforce. The Government consultation ‘Make Work Pay: ending one-sided flexibility – reforms of zero hours and similar contracts’ is now open until 25th August.

“Fire and rehire” – The practice of “fire and rehire”, i.e.  dismissing workers and re-employing them on less favourable terms, will also be restricted. Employers will no longer be able to resort to these practices to quickly adjust workforce arrangements, more advanced operational and financial planning will be required instead.

Unfair Dismissal – The qualifying period for unfair dismissal claims has been reduced from two years to six months. This means employers must be more careful in managing performance, probation, and termination processes. In the Construction sector where working on large projects and under time pressure is common, high performance can be critical, and learning how to manage it adequately will be as important.

Cultural Shifts – The introduction of day-one rights for paternity, parental, and bereavement leave marks a cultural shift. For example, a 2025 survey indicates that 1 in 3 men working in construction did not take any time off when their last child was born (nonetheless this stat will continue to be impacted by the self-employment status which remains extremely common in the sector, and which does not entitle one to paternity pay or shared parental leave). Nonetheless, for this industry which is highly dominated by men and traditionally has been less accommodating of family-related leave, these reforms reflect modern expectations of work-life balance.

Harassment – The Act strengthens duties around workplace harassment, including harassment by third parties, which is particularly relevant on construction sites involving multiple employers. This means employers may be liable if a worker is harassed by clients, customers, service users, (sub-)contractors and service providers, or visitors, and the employer has not taken all reasonable steps to prevent it. Businesses will need more robust reporting systems and stricter subcontractor oversight.

Union Action –The Act also simplifies industrial action, with reduced notice periods and stronger protections for workers who participate in strikes. Even if the unionisation of the Construction sector is below the average in the UK (12% vs 22%), the changes that the ERA brings could lead to more frequent collective action and heightened bargaining activity. As a result, project timelines and delivery may face greater disruption.

Rising Costs – Employment costs are expected to rise across all sectors. Changes include higher minimum pay obligations and statutory sick pay (SSP) from day one of absence. While this increases costs, higher wages may also motivate employees, increase productivity and reduce turnover, while SSP from day one may improve site safety by discouraging workers from attending work while unwell. Businesses should discuss the impact of any costs early with clients to ensure the true costs of recruitment, employment and due diligence are factored into pricing to avoid as part of responsible purchasing efforts.

Fair Work Agency (FWA) – The FWA, created by the ERA and launched in April 2026, brings together key enforcement bodies to address fragmentation in the labour market by serving as a single point of support for workers, and importantly by strengthening the enforcement of employment rights. If a business breaches rules on SSP, holiday pay or the National Minimum Wage, fails to keep adequate employment records  or misclassifies workers, the Fair Work Agency (FWA) can investigate and exercise wide enforcement powers, including carrying out inspections, requesting records, issuing penalties, and recovering unpaid wages and holiday pay.

Umbrella Companies – In April 2026, the HMRC has also brought in new compliance obligations for umbrella companies. The identification of non-compliance issues, including in the construction sector, has long been argued to be hindered by the prevalence of umbrella companies which are preferred by some individuals because it handles the PAYE payroll for them. A 2024 HMRC report estimated that 700,000 individuals were working through approximately 500 umbrella companies, with £500 million in tax revenue lost to disguised remuneration avoidance schemes in 2022-2023. Under the new rules, the HMRC will have powers to recover unpaid PAYE income tax and NICs from recruitment agencies and, in some cases, end clients where an umbrella company fails to meet its tax obligations. Therefore, this reform shifts risk upwards in the supply chain.

Preparing for the Changes

To adapt, construction businesses should:

  • Review employment strategies and workforce models
  • Update contracts and policies, particularly on day-one rights and probation procedures for employees and workers
  • Monitor working patterns for agency and zero-hours staff
  • Audit employment status across contractors and subcontractors
  • Provide training on fair dismissal, performance management, and employment law compliance
  • Review preventative steps to address sexual harassment and consider if all reasonable steps are being taken
  • Budget for increased wage and statutory benefit costs and discuss these openly with clients to ensure a sustainable commercial model that protects workers’ rights and entitlements
  • Review your labour supply chain to identify whether umbrella companies are used and assess their advantages and disadvantages, and strengthen your due diligence process for contracting umbrella companies; consider alternative recruitment and engagement models.
Looking Ahead

Overall, the Employment Rights Act represents a significant transformation in UK employment law for sectors across the UK. Whilst it introduces significant changes for UK construction, proactive planning can help businesses remain compliant while strengthening existing processes, improving transparency and building a more stable and equitable workforce.

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