The short answer: how the Act hits a care agency's wage bill
The Employment Rights Act 2025 raises the cost of employing carers in three connected ways, and the total matters more than any single line. First, guaranteed-hours offers reduce your ability to scale staff up and down as council packages change. Second, day-one Statutory Sick Pay (SSP) means you pay from the first qualifying day of sickness rather than the fourth. Third, the shorter unfair-dismissal clock makes probation and record-keeping far more important from month six. None of these is enormous alone. Stacked together, on a 40-carer London agency, they add up to real money.
Here is the honest framing before we go further. The Act received Royal Assent in December 2025, but it does not switch everything on at once. Measures are staged across 2026 and 2027, and several of the details, including exactly how guaranteed hours and cancelled-shift payments will work, are still being set through regulations after consultation. So treat the figures in this guide as directional. They tell you where the pressure sits and roughly how big it is, which is what you need for planning. You can see the primary law on the Employment Rights Act 2025 on legislation.gov.uk.
Why does this land harder on care than on, say, a shop or a cafe? Because carers are your product. In a planning scenario where wages account for 60 to 75 percent of a domiciliary agency's turnover, so anything that touches employment cost touches the whole business at once. That is also why a generic payroll bureau tends to miss the knock-on effects. That range is a scenario assumption, not a measured result from LOYALS clients. For the wider picture on running an agency's finances, our care agency accountants page sets out how payroll, council invoicing and compliance fit together.
There is no need to freeze hiring because of a timetable that is still being settled. Modelling the change now gives an agency a clearer basis for its contracts, rota discipline and commissioner discussions before the later measures take effect.
What changes, and when: the roadmap for care agencies
The changes are phased, so the useful question is not "what does the Act do" but "what lands, and when, for a care agency". The government has published an implementation roadmap that sequences the measures across 2026 and 2027, and the dates below follow it. Read them as expected windows, not promises, because commencement is done through separate regulations that can move.
The measures most relevant to a home care agency are day-one Statutory Sick Pay, already live from 6 April 2026, regulations for the Adult Social Care Negotiating Body in October 2026, and the shorter unfair-dismissal qualifying period from 1 January 2027. The government will update the guaranteed-hours timetable after consultation. The timeline below separates confirmed dates from the later work still being settled.
Notice how tight the run is. You are barely a year past the sick-pay change before the dismissal clock shortens, and guaranteed hours follow in the same year. That clustering is the operational risk: an agency can adapt to one change comfortably, but three in eighteen months needs the contracts, the rota system and the payroll process to all move together. The payroll piece in particular has to be right in real time, which is why we cover it under payroll and PAYE rather than leaving it to year-end.
Guaranteed hours: the biggest cost driver
Guaranteed hours is the change that will cost a care agency the most, because it attacks the exact flexibility the sector is built on. Under the Act, a worker on a zero-hours or low-hours contract can be offered a contract that reflects the hours they actually worked over a reference period, and the right extends to qualifying agency workers as well. In plain terms, if a carer regularly works 32 hours a week for three months, you may have to offer them a contract for something close to that, whether or not next month's council packages support it.
Alongside guaranteed hours sit two related duties: giving workers reasonable notice of shifts, and paying them when a shift is cancelled, moved or cut at short notice. The precise definition of short notice and the amount payable will be set in regulations, and the government has consulted on the detail, so the mechanics are not final. You can follow that work on the government's consultation on ending one-sided flexibility in zero-hours and similar contracts.
For a home care agency, the pain is not the headline hours. It is the mismatch between guaranteed hours and commissioned hours. Council and private packages start, pause and end constantly. Today you soak that up by flexing carers' hours week to week. Once hours are guaranteed, a package ending does not automatically reduce your wage cost, so the gap between what you are contracted to pay staff and what you can bill sits on your side of the ledger. If your agency relies on that flexibility, model the cost of paying guaranteed hours when a package pauses.
There is a practical defence, and it is not a loophole. Get your reference period and your rostering discipline right, so guaranteed hours track genuine, sustainable demand rather than a temporary spike. Keep clean records of offers, acceptances and refusals. Match guaranteed hours to your baseline of stable, long-running packages, and keep genuinely variable cover on a separate, honest arrangement. That is finance and operations working from the same numbers, which is the whole point of running proper management accounts for the agency.
Day-one sick pay and the shorter dismissal clock
Two further changes hit the numbers and the paperwork, and both are easy to underestimate. The first is Statutory Sick Pay from day one. Since 6 April 2026, SSP is payable from the first qualifying day of sickness, the three waiting days are gone, and the Lower Earnings Limit (LEL) test has been removed, so lower-paid carers who used to fall below the threshold now qualify. SSP is £123.25 a week for 2026/27, or 80 percent of average weekly earnings if that is lower. You can read the change on the government's announcement that millions of workers now get new access to sick pay.
Why does day-one SSP matter more for care than for most sectors? Short shifts and part-time patterns. A carer off for two days used to cost nothing in SSP because the whole absence fell inside the waiting days. Now it is payable, and with the LEL gone, more of your part-time carers are inside the system. Individually the sums are small. Across a 40-carer rota with the churn and short absences that are normal in care, they add up quietly, which is exactly the kind of drift that a bureau processing payroll on autopilot never flags.
The second change is unfair dismissal. Contrary to a lot of the early headlines, this is not becoming a full day-one right. The Act cuts the qualifying period for ordinary unfair dismissal from two years to six months, expected from 1 January 2027, and it removes the power to change that period again without new primary legislation. Day-one protection still applies for automatically unfair reasons and for discrimination, as it always did. For a care agency, the message is simple: from month six a carer can bring an ordinary unfair-dismissal claim, so your probation process, supervision notes and dismissal paperwork have to be genuinely in order well before then.
These two are cheaper than guaranteed hours, but they are where sloppy admin turns into a bill. A missed SSP calculation, or a dismissal at seven months with no paper trail, costs far more than the process would have. This is compliance work, and it runs off the same weekly payroll data that Real Time Information (RTI) reporting to HMRC already requires, so the marginal cost of doing it properly is small if the plumbing is right.
A worked wage-bill model for a 25 to 50 carer agency
Here is a worked model of how the changes could affect a care agency's wage bill, so you can see the shape rather than guess at it. It is illustrative. Exact rules and dates are not final, so treat it as a planning frame, not a quote. The model ranks potential drivers using the assumptions shown below, rather than claiming a sector benchmark.
Take a 40-carer London home care agency. Assume each carer is paid for about 30 hours a week at the National Minimum Wage (NMW), which for workers aged 21 and over is the National Living Wage (NLW) of £12.71 an hour from April 2026. That is a base wage bill of roughly £793,000 a year before employer National Insurance and pension. Now layer on the Act. The chart below ranks the four things that actually add cost, largest first.
Read the ranking rather than the exact pounds. Guaranteed hours dwarfs everything else, because it converts previously variable cost into fixed cost. Day-one sick pay and the retention trade-off are second-order. Admin and holiday-pay accrual is smallest, but it is the one operators forget, since guaranteed hours also lift the base on which holiday pay accrues at 12.07 percent. Put together, the illustrative total is about £90,000 a year on a £793,000 base, which is roughly an 11 percent uplift. The next chart shows that same total as a share of the whole bill.
An 11 percent uplift is survivable if you see it coming and unwind it into your fee negotiations and rota planning. It is a serious problem if it arrives as a surprise in a business already running on thin margins. That is the difference this guide is trying to make. If you want to sanity-check where your agency actually sits, our note on domiciliary care agency profit margins in the UK explains how to examine your own margin, and the framework for council home care framework financial standing shows how commissioners will read your accounts while all this lands.
The Fair Pay Agreement and where care wages go next
Beyond the general employment changes, the Act opens a care-specific route to higher wages: the Fair Pay Agreement. The Act lets the Secretary of State for Health and Social Care set out, in regulations, a process for a sector-wide agreement on care workers' pay and conditions, negotiated through an Adult Social Care Negotiating Body. This is the one measure written specifically for your sector, and it is the one most likely to move base pay above the National Living Wage floor over time.
The sequence is staged. The government says regulations will be laid in 2026, negotiations are expected to begin around April 2027, and the first agreement is expected to take effect in April 2028. That is not a 2026 wage shock, but it is a useful planning horizon for an agency quoting longer council and private contracts. The government's own summary sets out how care workers will be represented in fair pay agreements.
What should you do with a change that is still years off? Build the assumption into your fee models now. When you negotiate a council framework rate or a private client fee for 2027 and 2028, price in a wage floor that rises faster than general inflation. Agencies that lock into multi-year rates at today's assumptions are the ones that get squeezed when the floor moves. The context of an ever-rising National Living Wage already points the same way, as the government confirmed when the National Living Wage increased to £12.71 an hour.
Here is how the three common ways of handling the Act compare for a care agency:
| What you need | DIY / software | Generic payroll bureau | LOYALS care specialist |
|---|---|---|---|
| Models the wage-bill impact before 2027 | ✗ You self-model | ✗ | ✓ Built into onboarding |
| Flags which carers trigger guaranteed hours | ✗ | ● If asked | ✓ From your rota data |
| Gets day-one SSP right every run | ● If you notice | ✓ | ✓ Weekly, with RTI |
| Ties wage cost to council and private billing | ✗ | ✗ | ✓ Invoicing plus payroll |
| Open Mon to Sat for urgent rota questions | ✗ | ✗ Mon to Fri 9 to 5 | ✓ 10am to 7pm Mon to Sat |
| Fixed monthly fee, no surprise invoices | ✓ | ● Per-payslip pricing | ✓ Fixed monthly |
This is why care operators facing the Act move from a general payroll bureau to a specialist that runs payroll and council invoicing from the same numbers.
What this means for you: what to do before 2027
Start with your contracts and your reference period, because guaranteed hours is where the money is. The practical steps below are the ones we walk care clients through, and most of them cost nothing but attention if you start now rather than in the last quarter of 2026.
- Map your carers against a reference period. Work out which carers regularly work stable hours and would qualify for a guaranteed-hours offer, and which are genuinely variable. This tells you the real size of your exposure.
- Separate stable demand from spike demand. Match guaranteed hours to long-running, sustainable packages. Keep genuinely variable cover on honest, well-documented arrangements rather than pretending stable work is casual.
- Tighten probation and supervision records. From January 2027 a carer can bring an ordinary unfair-dismissal claim at six months. Make sure supervision notes and dismissal paperwork are in order before then.
- Get day-one SSP running cleanly. Confirm your payroll pays SSP from the first qualifying day, with the LEL gone, on every run and reported through RTI.
- Price the wage floor upward. When you set council and private rates for 2027 and 2028, build in a wage floor that rises faster than general inflation, ready for the Fair Pay Agreement.
- Run a historic NMW check. Travel time, sleep-ins and uniform deductions are common ways care agencies slip below the minimum wage by accident. Fix any exposure before a wider review lands.
None of this is dramatic. It is sequencing, contracts and clean payroll data, done a little ahead of time. LOYALS runs care payroll and compliance for London home care agencies, so when guaranteed hours and day-one sick pay bite, your numbers are already modelled and your filings are already handled. Because commencement dates are staged and several details still sit in regulations, treat every date here as at September 2026, per the government's implementation roadmap, and verify before you act.
If you run a domiciliary or home care agency and want a single team handling payroll, council invoicing, National Minimum Wage compliance and the finance modelling behind all of it, that is exactly what our care agency accountants service is built for. It is the cornerstone that ties every point in this guide together.