Employment Law Coffee Break: Employment Rights Act webinar, further reforms in force this April, and pay transparency

Employment Law Reforms: join our next webinar on 9 April 2026

With employment law reforms now being implemented at pace, Osborne Clarke lawyers Amy Moylett, Alexandra Farrell Thomas and Shaziya Kurmani are hosting a webinar on Thursday 9 April 2026 at 9am. They will look at what employers and agencies must do now to prepare for the 2026/2027 reforms. Register now.

Holiday pay records and new tribunal limits in force from April 2026

Last week's edition looked at a number of statutory measures and pay rates coming into force this April. This week has seen further developments, in relation to holiday pay records, new compensation rates for unfair dismissal and statutory redundancy pay, and mandatory ethnicity and disability pay gap reporting.

Holiday pay records

A second commencement order has been published this week which provides that the new statutory duty for all employers to keep records of annual leave for six years will now come into force on 6 April 2026.

An amendment to the Working Time Regulations under the Employment Rights Act 2025 requires employers to keep records demonstrating that all eligible workers have been afforded the paid statutory holiday to which they are entitled.

The records must be "adequate" with no prescribed form, although they must contain sufficient information to demonstrate compliance with the new requirement. Failure to comply with the statutory requirements is a criminal offence with the potential to receive an unlimited fine.

Employers should take the opportunity now to audit their current records for monitoring holiday entitlement and pay, ensuring they are sufficiently clear. Systems should also be put in place to ensure that records are retained for six years and any data protection retention policies updated accordingly. Keeping on top of holiday pay will be particularly important given the new onerous enforcement powers of the Fair Work Agency, including the ability to issue notices of underpayment and levy fines.   

New compensation rates announced for unfair dismissal and statutory redundancy pay 

The limits that apply to certain awards in employment tribunals have been announced, applying to dismissals where the effective date of termination falls on or after 6 April 2026:

• The limit on a week's pay increases from £719 to £751.
• The maximum compensatory award for unfair dismissal increases from £118,223 to £123,543.
• The minimum basic award for certain unfair dismissals (including health and safety dismissals) increases from £8,763 to £9,157.
• The limit on the compensatory award for failure to allocate and pay tips fairly (or for failure to have a written tips policy or maintain records of how tips have been dealt with) increases from £5,135 to £5,366.

The new statutory family friendly leave and sick pay rates had also been announced. It has now been confirmed that statutory maternity pay will increase from £187.18 to £194.32 on 5 April 2026, and the same increase will apply to statutory paternity, adoption, shared parental, parental bereavement and neonatal care pay from 6 April 2026. Statutory sick pay will increase from £118.75 to £123.25 on 6 April 2026.

UK government commits to introducing mandatory ethnicity and disability pay gap reporting

The government has confirmed its commitment to introduce mandatory ethnicity and disability pay‑gap reporting for large employers following its consultation in early 2025 which demonstrated "widespread support for mandatory ethnicity and disability pay gap reporting by large employers to increase transparency and help tackle barriers in the workplace".

In response to the consultation, the government has confirmed that it intends to implement the following proposals:

• align ethnicity and disability pay gap reporting with the existing framework for mandatory gender pay gap reporting – that is, apply mandatory reporting to employers with 250 or more employees, use the same geographic scope, require the same six calculations, share the same "snapshot" dates for collecting pay information and statutory reporting dates, require employers to upload their ethnicity and disability pay gap data to an online service, and be subject to the same enforcement mechanisms;
• require employers to report on the overall composition of their workforce by ethnicity and disability (also referred to as "workforce reporting") and the proportion of their employees who have declared their ethnicity and disability data; and
• require employers to take actions to address any ethnicity and disability pay gaps, in line with the plans being taken forward to introduce equality action plans on gender and the menopause. The government's ultimate aim is for employers to produce a single equality action plan on the same online service when all the reporting requirements are in place.

The consultation response also features suggested clauses for the new legislation. The government will continue to develop the legislation, including supporting regulations setting out the detailed reporting requirements.  

The government's response confirms that it will provide guidance and tools to support employers in implementing the new obligations including guidance on improving employee declaration rates on ethnicity and disability, performing the required calculation and advice on actions to address pay gaps identified within the organisation.

What does this mean for employers?

No formal timetable has been announced but given that the consultation response provides draft statutory clauses, it seems likely that the government is keen to move forward with this reform, although it is unlikely that it will be enacted before 2027 at the earliest.

While aligning the regime so far as possible with that already in place for gender pay gap reporting will be welcomed by employers, reporting on ethnicity and disability pay gaps will be a more complex process. The usefulness of the new reporting obligations for employers in understanding any inherent inequalities existing within their workforce will naturally be dependent on the volume and accuracy of data collected. It will also be important to understand the limitations of the data available and the impact this has on the reporting required (although some context will be provided by the declaration employers are required to give of the percentage of employees who have chosen not to identify their ethnicity or disability).

The government proposes a tiered approach to ethnicity pay gap calculations. At a minimum, employers must report using a "binary classification" of White (including White Other) and all other ethnic groups. Where numbers permit, employers will also be required to report comparisons between the five broad ethnic groups set out in the Office for National Statistics guidance. The government is considering the minimum threshold for reporting on groups so as to protect confidentiality and produce statistically robust data in line with GDPR requirements. The current indications are that this will be ten (but it is still to be confirmed).

In respect of disability, the binary approach to reporting which is being adopted may lead to distortions, given the inevitably wide scope of conditions falling within the Equality Act 2010 definition of disability (for example, individuals with a range of physical and mental health conditions may meet the definition, with some conditions automatically deemed to be disabilities, as well as those who are neurodivergent) and the different impacts different disabilities have on day-to-day work. The government has indicated that it will "future-proof" the legislation to provide for more granular disability reporting should it become apparent that this is appropriate.  

Employers will need to consider carefully how data collection is approached with employees, ensuring that appropriate safeguards are in place and that employees understand the new pay reporting obligations. While the new reporting duties will only apply to those with 250 plus employees, this is an area which all employers should have on their radar.

The government's announcement confirms that this forms part of its wider commitment to break down barriers to work, including a £3.5 billion package of employment support by the end of the decade to help more sick or disabled people into work. Initiatives include expanding WorkWell to support up to 250,000 people to return or stay in work (backed by £250 million), providing 300,000 sick or disabled people with tailored help through Connect to Work and partnering with employers to transform how disabilities are managed at work following the Keep Britain Working Review. The equivalent of over 1,000 full time Pathways to Work advisers have been put in place across Britain to support disabled people into work.

The outcome of the government's separate call for evidence which sought views on making the right to make equal pay effective for ethnic minority and disabled people, alongside looking at other areas of equality law, is still awaited.

International outlook: the EU Pay Transparency Directive

The EU Pay Transparency Directive is due to be implemented across EU Member States by 7 June 2026. It introduces far‑reaching obligations such as pre‑employment pay transparency, objective and transparent pay‑setting and progression criteria, employee rights to information on individual and average pay by gender for comparable roles and gender pay reporting potentially giving rise to a need to carry out joint pay assessments.

EU jurisdictions are pushing ahead with their domestic legislation bringing the directive requirements into force; however, it remains to be seen how many will meet the 7 June deadline. Employers should not wait to take steps now towards compliance: reputational damage, retention challenges and competitive disadvantage risks in a tight labour market can outweigh legal penalties. Employers should look to ensure a culture of transparency and accountability in the workplace, through measures such as auditing pay to identify gaps, implementing transparent pay and progression frameworks, building robust reporting mechanisms, and engaging with works councils or employee representatives. We are continuing to update our EU Pay Transparency microsite looking at progress towards implementation across jurisdictions.

If you would like more information on the implications of the directive and how your organisation can prepare for it across jurisdictions in which you are operating, please contact your usual Osborne Clarke contact. This week, Thierry Vierin, partner in our Belgium employment team, hosted a webinar, alongside Thomas Goubau (CEO, Q7Leader) breaking down the proposals employers are putting on the table, from salary disclosure in recruitment to how pay gaps should be measured and walking through a practical five step method for preparation. If you would like a recording, please let us know.