Public-sector organisations risk contract delays and compliance failures as small and medium-sized enterprises (SMEs) across their supply chains remain unprepared for the government’s impending Employment Rights Act, new findings from Commercial Services Group suggest.
The Group’s research reveals fewer than two-thirds (64%) of employees in small and medium-sized businesses say they are aware of the Act. However, 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 contracting 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 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.
Rob Boyles, Group Chief Finance Officer soon to be Group Chief Executive Officer at Commercial Services Group, said: “Employment reforms are no longer siloed HR issues, they are overlapping with public-sector procurement. 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.”
In early 2026, pay transparency and redundancy safeguards will be required, and by mid-2026 enforcement powers will be fully operational with regulators granted the authority to impose penalties for non-compliance.
While larger organisations often have the budget, in-house legal and HR capacity to respond quickly to regulatory change, many SMEs do not. The research reveals a potential capacity challenge, with almost two-fifths (38.2%) of small businesses saying clearer government guidance will be essential to help them prepare.
Rob added: “With SMEs playing such a vital role in delivering public services, supporting them to understand and implement these changes is essential to the resilience and reliability of public-sector supply chains. Now is the time to start reaching out for support revising policies and modernising contracts.
“If employers act early, compliance could turn into a strategic advantage, positioning their businesses as a fair and transparent employer.”
Commercial Services Group’s report, Managing Change: The Employment Rights Bill and the Future of Work in the Public Sector, can be found at https://www.commercialservices.org.uk/wp-content/uploads/2025/11/Employment-Rights-Bill-2025-DIGITAL-1.pdf
To find out more, visit www.commercialservices.org.uk