The Employment Rights Act became law on 18 December 2025 introducing some significant changes to UK employment law, with phased implementation through to next year. In this blog we look at the principal changes from the beginning of April 2026 and the implications for the hospitality sector.

The key employment law changes affecting hospitality from 1 April 2026 are as follows:

  • Day-one employment rights – employees gain immediate access to rights such as paternity leave, unpaid parental leave and bereavement leave
  • Statutory Sick Pay (SSP) becomes payable from day one and the lower earnings limit is removed, capturing more lower-paid and casual workers in the sector.

As a result, there will be an increased administrative burden for businesses in terms of reviewing employment contracts and updating HR policies, as well as potential additional labour costs and job rota complexity.

Here are a few matters for hospitality operators to consider on the back of the above changes as well as the increase in the minimum wage from 1 April 2026.

Why your labour cost model is already out of date

For most hospitality businesses, labour remains one of the largest costs in the P&L. It is tracked closely, reviewed regularly and often scrutinised down to a per-cover or per-room level. But there is a growing problem.

Across the sector, many operators are still relying on labour cost assumptions that no longer reflect the reality of how their workforce is structured, paid and managed. Changes introduced over the past 12–18 months, and those still to come, are quietly reshaping the true cost base – have the April 2026 minimum wage increases been budgeted for? For finance teams then this matters, because if the underlying numbers are wrong, so too are the decisions built on them.

The financial reporting blind spot

While much of the conversation around these changes sits with HR and operations, there is a distinct financial reporting dimension that is often overlooked. As employment risks increase, finance teams need to consider how these exposures are reflected in the accounts.

For example: At what point does the likelihood of an employment tribunal require recognition, rather than disclosure as a contingent liability? How should potential back-pay or misallocation of tips be treated where governance has been inconsistent?

These are not theoretical questions. They go directly to the integrity of financial statements and the adequacy of disclosures.

In a sector where external scrutiny from lenders, investors and auditors is increasing, clarity around these areas is essential. Internal controls over payroll and tips allocation, the robustness of documentation, and the consistency of application across sites all become part of the financial risk landscape.

Put simply, labour cost is no longer just an operational metric. It is a balance sheet consideration.

From reaction to control

None of this is about suggesting that hospitality operators have made the wrong decisions. Many of the approaches adopted in recent years were pragmatic responses to a fast-changing environment.

The challenge now is that the environment continues to move. The businesses that are getting ahead are those stepping back and reassessing their workforce model through a financial lens. They are asking not just what they pay their people, but what that structure truly costs, where the risks sit, and how comfortable they would be explaining it under scrutiny.

That means refreshing labour cost models so they reflect the full impact of wage increases, NIC, holiday pay and tips treatment. And it means considering whether current provisions and disclosures accurately capture employment-related risk.

With further changes to tips legislation expected later this year from 1 October 2026, there is also a clear opportunity to look forward rather than react. Scenario modelling now, before consultation outcomes are finalised, allows operators to make considered, controlled adjustments rather than rushed changes later.

Clarity is a competitive advantage

Labour will always be one of the most complex and least predictable costs in hospitality. That is unlikely to change. What is changing is the level of transparency and precision expected around it.

Operators who take the time to properly understand and model their labour cost base, including tronc structures, employment risk and reporting implications, will be in a far stronger position. Not just to manage cost, but to demonstrate control, build confidence with stakeholders, and make better-informed decisions.

Those who delay may find themselves reacting to issues as they arise, with less flexibility and ultimately higher cost. In the current environment, clarity on labour cost is no longer a nice-to-have. It is a competitive advantage.

The next step

If you would like to discuss how these changes could impact your business, or review whether your current labour cost model fully reflects the underlying risks and costs, please get in touch with your usual UHY adviser or a member of our hospitality team. We would be pleased to help.

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