Alex Blyth.

On 1 October 2006 it will become illegal for UK employers to discriminate against their employees on the basis of age. Many are describing this as the biggest change to employment legislation in the past 30 years.

Yet few businesses are aware of it and even fewer are doing anything now to prepare for it. Unless they act now, they could soon be facing costly employment tribunals, but what exactly should they be doing?

In July 2005, the Department of Trade and Industry published the draft Employment Equality (Age) Regulations 2006. These draft regulations accompany the publication of the latest consultation document Equality and Diversity: Coming of Age.

'Age discrimination legislation is the final part of the EU's 2000 directive on discrimination in the workplace,' notes James Davies, head of employment and incentives at law firm Lewis Silkin. 'The UK has already introduced the gender, race and sexuality aspects, but left age till last, believing quite rightly that it would be the most difficult to implement.'

In brief, the legislation outlaws any direct or indirect age-related discrimination and harassment. It imposes a default retirement age of 65 and gives employees the right to request continued employment after that age. It also gives employees the right to claim unfair dismissal beyond normal retirement age. None of this sounds too dramatic, but in actual fact the implications for employers are likely to be wide ranging.

Some companies are proactively preparing for the new laws. For instance, one year ago BT audited all of its policies to remove any age discrimination.

Becky Mason, people networks manager, describes the outcome: 'We'd already done a fair bit on removing age from all our job ads, training requirementsand so on, but this started us thinking about what might be deemed discriminatory under the new laws. We're putting together an action plan for what we need to change in the next year.'

However, according to a recent survey of 91 human resources professionals by information provider Croner, only 48% of companies are making similar preparations. Freda Line, employer relations manager at the Employers Federation on Age (EFA), an employer-led charity, comments: 'In the main businesses are very complacent about the impact of age laws. Our members are acting, but beyond this we see very few signs of activity. Many companies seem to think that age laws will have very little effect. They couldn't be more wrong.'

The EFA advises all employers to review thoroughly all of their employment policies and procedures to ensure that they will not fall foul of the new legislation. This will cover everything from recruitment to retirement and will probably involve a significant culture shift as well as some training.

Alasdair Hobbs, head of employment at Midlands law firm Manby & Steward comments: 'The greatest change for most businesses will be on retirement.

Employers have to give their staff notice at 12 and six months that they are reaching the retirement age of 65. If an employee wants to continue to work beyond that point he or she must put in the request at least six months in advance. The employer must give proper consideration to that request.'

For certain jobs, such as manual labour, there are good reasons why elderly workers should not continue beyond a certain age. For most jobs though, employers will struggle to justify turning down a request to continue working beyond 65. Some companies, notably B&Q and Marks & Spencer, already operate without a retirement age, while others, such as Barclays and Nationwide, have raised it to 70 or 75.

The new laws will also have a major effect on recruitment. As Kate Hindmarch, head of employment law at law firm Langleys, explains: 'The new regulations will impact heavily on those responsible for recruitment in UK businesses.

Use of adjectives such as "dynamic", "energetic" or "senior" in job advertisements will no longer be allowed and schemes, such as graduate recruitment, may well become a thing of the past.' Most companies will need to train those doing the recruitment on the requirements of these laws.

Companies also need to look at their benefits packages. Andrew Masters at Furley Page Solicitors comments: 'Many employers require their employees to have completed a certain length of service before pay is increased or benefits given. Examples might include incremental pay scales or extra holiday entitlement. These can be discriminatory against younger workers, who have not completed the required length of service, and this will become unlawful.'

There are many more specific areas for companies to look at, but it is just as important for them to address the cultural change which these laws will necessitate. Richard Smith, director of employment services at Croner, comments: 'While employers can't change employees' beliefs, they can ensure that all employees are aware of the organisation's policy that it will not tolerate ageist behaviour, whether direct or indirect.

Some employers may wish to hold employee workshops or focus groups to discuss how they can make their workplace more age-friendly.'

Some employers might see all this as just another regulatory burden from Brussels and decide not to bother. The most obvious consequence of this is that as of next October if an employment tribunal finds that they have discriminated against an individual on the grounds of age, it can order them to pay compensation. Tribunals are not limited regarding the amount of these payments.

However, some argue that the best reason to comply with these laws is that a truly diverse workforce is more effective than one based on discrimination, be that by gender, sexuality, race, or age.

Petra Cook, head of public affairs at the Chartered Management Institute, argues: 'Over the past few years, more and more organisations have realised that a mixed workforce is a successful one. They recognise that a blend of experience and youth can help organisations reach a wider target audience. Employers who still think otherwise are missing out on the substantial and proven business benefits, such as flexibility and productivity, which a good mix of workers can bring to their businesses.'

'This new legislation is likely to result in companies paying out £30m in compensation,' says, John Davies, head of business law at the ACCA.

'Yet when we did a straw poll on our website of who was aware of it, only about half were.

We've produced a leaflet detailing what new laws mean for accountants, but the industry needs to make itself more aware of them.'

He believes that retirement will be a particularly critical issue for accountancy firms. He comments: 'Many accountants are retired by their employers in their early 60s, but 65 will become the default retirement age, so firms will need to revise those plans. The process might well become more time-consuming and bureaucratic.'

He goes on to say: 'Many firms will also need to change the wording of their jobs ads. You won't be able to mention age or ask for recently qualified accountants. The law does allow exemptions on this where there's a genuine occupational requirement but I can't see how this would be the case with accountants.'