As businesses brace for the U.K.’s new Employment Rights Act to take effect, SMEs warn that a lack of preparedness is putting supply chains at risk, according to research from Commercial Services Group, a consulting and services provider to the public sector in the U.K. 

The Act, which began to come into effect from February 2026, makes numerous changes to workers’ rights in the U.K. The Act will be delivered in phases across a two-year period. Among the changes, the 26-week qualifying period for paternity leave will be removed, granting full rights from day one. In 2027, those on zero-hours contracts will be given rights to guaranteed hours. 

Research from CSG indicates that fewer than two-thirds (64%) of employees in small and medium-sized businesses are aware of the Act, paving the way for compliance failures and contract delays. Meanwhile, one in three (36%) report experience of zero-hours contracts, highlighting the scale of change many smaller employers will need to undertake to meet the new requirements. 

The findings come as U.K. public-sector authorities are under clear instruction through the National Procurement Policy Statement (NPPS) to increase spend with SMEs and voluntary, community and social enterprises (VCSEs), while ensuring that suppliers continue to meet high standards of employment practice.  

Under proposed reforms, large contracting authorities spending more than £100 million ($134 million) a year will be required to set targets for direct spending with SMEs and VCSEs. They will also be expected to demonstrate that their supply chains comply with strengthened employment rights, placing increased scrutiny on workforce practices across public-sector contracts.  

“Employment reforms are no longer siloed HR issues, they are overlapping with public-sector procurement,” said Rob Boyles, group chief finance officer at CSG. “If gaps in SME compliance are not addressed, it could carry costly implications through delayed contracts and failed audits. Realistically, those risks are passed straight into public-sector contracts, making it harder for contracting authorities to meet the expectations set out in the NPPS.” 

CSG says that, while larger organizations often have the budget, in-house legal and HR capacity to respond quickly to regulatory change, many SMEs do not. The research points to a potential capacity challenge, with almost two-fifths (38.2%) of small businesses saying clearer government guidance will be essential to help them prepare.