Employment rights legislation has been widely heralded by trade unions despite some commitments being watered down

The Fair Work Agency will be created as part of the legislation, which will include stronger protections against exploitative contracts. Photograph: Keith Morris/Alamy

Rogue employers will be targeted by a beefed-up new enforcement agency to protect sweeping changes to rights at work for millions of Britons, set to be outlined in a “watershed” bill published on Friday.

The Fair Work Agency will be created as part of the government’s employment rights legislation, which will include stronger protections against unfair dismissal and exploitative contracts.

Officers will have inspection powers and will be able to enforce new penalties for those who breach employee rights – such as holiday pay and a minimum wage. Whistleblowers will be encouraged to report bad behaviour to the new body.

Its powers will not be limited to the new rights but it will also enforce a range of current rights including the national minimum wage and certain aspects of the Modern Slavery Act.

The deputy prime minister, Angela Rayner, told the Guardian that the bill was a “watershed moment”, describing it as “the biggest overhaul of workers rights in generations”.

“This is a government by working people, for working people, and our purpose is crystal clear – to make work pay,” Rayner said.

The implementation of the new body would take time – and be subject to consultation – with the earliest timeframe for the new rights to take effect being autumn 2026.

The new employment rights bill was promised within 100 days but it has been the subject of tortured wrangling between ministers, trade unions and businesses up to the final hours before publication. A last-minute concession was made on a longer statutory probation to business leaders.

The government will now aim to make that nine months, having previously suggested that it would recommend six months. Rachel Reeves, the chancellor, had been thought to favour an even longer 12-month maximum probation period.

But despite the last-minute nature of the deal, trade unions have widely heralded the changes, which the TUC called a “seismic shift”. Small businesses however have said the reforms have been rushed and chaotic in order to meet an arbitrary timeframe.

The government claims the scope of the reform is huge – 9 million people will gain new rights against unfair dismissal, more than 1 million low-paid workers on zero hours will have the right to job security on a new contract, an extra 30,000 parents will gain new rights to paternity leave, and 1.5 million will be newly entitled to unpaid parental leave.

Ministers also believe the bill will help at least 1.7 million people into the labour market who are not working because of family commitments – and who would benefit from new policies on flexible working and parental leave.

“This landmark legislation will turn the tide on decades of insecurity and low-pay while driving up productivity, generating growth and improving living standards,” Rayner said.

“In the biggest overhaul of workers rights in generations, today Labour will put fair pay and secure work back at the heart of our economy, boosting productivity and growth.”

The bill will remove the two-year qualifying period that employees must currently serve before they can sue for unfair dismissal – and that right will now be available from day one. But in a concession to businesses, there will also, for the first time, be a probation period defined in law, which will allow for a “lighter touch” route to letting an employee go for poor performance.

Government sources have stressed that action for unfair dismissal will still be possible during this period if an employer has acted incorrectly.

Within the bill are 28 major reforms, including the end of zero-hours contracts, apart from at a specific employee request, and a ban on fire and rehire practices, though with some exemptions if a business is at real risk of permanent collapse.

There will be new rights to sick pay from day one of illness and the removal of the lower earnings limit for sick pay. Employees will get day one rights to paternity and unpaid parental leave.

The legislation will require employers to adopt flexible working as the default for employees – though employers will be able to object on specific practicality grounds. It will also require large employers to create action plans on addressing gender pay gaps and supporting employees through menopause. Protections against dismissal will be strengthened for pregnant women and those returning from maternity leave.

The bill will also repeal the anti-union legislation put in place by the previous government, including the Minimum Service Levels (Strikes) Act legislation, which never came into force.

However, a number of measures in Labour’s manifesto and original workers’ rights pledges have not made the cut – most crucially a pledge to legislate on a single status of workers to erase the grey area between employee and self-employment status.

Government sources said that required a longer period of consultation and could not be done within the 100 days timeframe – but insisted it remained a commitment.

Other commitments have been watered down and are likely to take the form of a code of practice, including the “right to switch off”, which would prevent employees being contacted out of hours except in emergencies. There will also be a promised review of the parental leave system.

Unions have broadly welcomed the vast majority of the changes – despite some anger over the summer on the carve-outs for fire and rehire and zero-hours contracts, as well as the slow implementation. The general secretary of the TUC, Paul Nowak, said it was “time to write a positive new chapter for working people in this country”.

Christina McAnea, head of the largest trade union, Unison, said: “Shifting the balance to give workers greater rights is long overdue. Expectations are high for this bill, which should bring once-in-a-generation changes to the workplace. For too long employees have had to suffer poverty wages, intolerable working conditions and discrimination.”

Ministers have been at pains to stress that the new laws will involve lengthy consultation with businesses – who have sounded the alarm for several years about the risks of the proposals on growth and the jobs market.

Tina McKenzie, policy chair at the Federation of Small Businesses, said: “This legislation is a rushed job, clumsy, chaotic and poorly planned – dropping 28 new measures on to small business employers all at once leaves them scrambling to make sense of it all. Beyond warm words, it lacks any real pro-growth element and will increase economic inactivity.”

The business secretary, Jonathan Reynolds, who will introduce the bill, said it would be good for businesses and workers. “The best employers know that employees are more productive when they are happy at work. That is why it’s vital to give employers the flexibility they need to grow whilst ending unscrupulous and unfair practices,” he said.