Mothers and fathers whose babies are born after 1 April 2007 are to receive increased rights under the new Work and Families Act. The new legislation, which has recently become law, will mean that maternity leave for all women is to be increased to up to 12 months, paid maternity leave will be increased to nine months' and fathers will have the right to 26 weeks' paternity leave. Under current arrangements fathers get two weeks paternity leave while mothers get six months.

The Act also paves the way for the government to amend the working time regulations so that employers cannot count statutory bank holidays as part of the paid annual leave. In addition, the government is currently consulting on increasing annual leave entitlement to 28 days.

Statutory maternity pay (SMP) is met by the taxpayer, but employers still incur the costs of finding temporary cover and often feel obliged to offer a financial top-up over and above the statutory payment. In response to the Act, the director general of the British Chambers of Commerce David Frost warned:

"The issue for businesses is that plans to extend parental leave could not only be an administrative nightmare, but could leave firms without key staff for long periods of time... the government must realise that extending parental leave at such an unprecedented rate will add more confusion and pressure to firms who are already struggling to compete."

From 1 April 2007, mothers-to-be will be entitled to nine months SMP and the intention is to extend this still further to twelve months in 2009. It will now be possible for SMP, as well as leave, to start on any day of the week and SMP will be payable on a daily, not just on a weekly basis. A new concept introduced by the Act is 'Keeping in Touch' days where employees on maternity leave will be allowed to work for a limited number of days without losing their entitlement to SMP for that week and without their leave ending. Keeping in Touch days will be arranged by agreement between the employer and the employee. However, there is no obligation for the employee to come into work for a 'Keeping in Touch' day and an employee is protected from detriment and unfair dismissal if they refuse to turn up.

The government claims that the new rules will bring benefits to small businesses by bringing better management to the administration of SMP, better planning for the return of mothers from maternity leave and more contact between businesses and their employees during leave. However, the government expects the employer to assume responsibility for the additional paternity scheme, making a mockery of the government's claim to be supporting enterprise and freeing businesses from red tape.

There are a number of complications when determining eligibility for the scheme, particularly where parents are unmarried, living apart or one parent has remarried. This is yet another pitfall for SMEs since if confusion occurs and an employee abuses the system, an employer could face sanctions. According to the Federation of Small Businesses the system is open to misuse since a father working two jobs could take paternal leave from one job yet increase his hours at his other job, claiming paternity pay while earning a full wage.

In response to the government's new legislation, the FSB National Employment Policy Chairman said "Large firms with their human resources departments may well be able to handle this law more easily, but for small firms employing 13 million people - over half the private sector workforce - this will be a nightmare."