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Small business owners are used to juggling everything: sales, operations, finance, customer service and, more often than not, HR. For many, managing employees is a practical, common‑sense exercise built on experience rather than any formal HR training.
But a major change to employment legislation comes into force on January 1 2027 that will turn the way in which many employers currently manage worker probation periods, performance issues, and early dismissals on its head.
A quiet change with big consequences
Under the changes introduced by the Employment Rights Act, the qualifying period for ordinary unfair dismissal protection will drop from two years to just six months. In practice, this means that any employee with six months’ service on January 1 2027 will automatically gain unfair dismissal protection overnight. This should be seen as an alarm bell for business owners, yet my experience suggests this is not the case.
Indeed, the majority of small businesses wrongly assume they have breathing room because the new rules do not formally take effect until early next year. This is seeing a great number of them sleepwalking towards a tribunal flashpoint – unaware that the routine probation period processes and decisions they have always made will soon carry full unfair dismissal liability.
Unless SME business owners and leaders act now, thousands could find themselves caught out and exposed to costly and time‑consuming employment tribunal claims in the new year.
Why smaller businesses need to be on higher alert than larger ones
Large organisations have internal HR teams, legal advisers, and established processes to manage dismissals safely and mitigate risk to the organisation. Most SMEs, however, do not. They largely rely on short‑service dismissals to manage unsuccessful hires, probation failures, or cultural misfits.
But once the clock strikes midnight to usher in the new year and the sound of Auld Lang Syne fades, dismissing someone with six months’ service will carry the same unfair dismissal risk as dismissing a worker who has two years’ service today.
According to the UK government, these changes are expected to create 9,000 additional early conciliation cases and 3,000 more employment tribunal claims each year. It is my view that without proper documentation, process, and advice, employers could find themselves facing claims they never expected and might not be able to afford. For small businesses already stretched thin, even one claim can be disruptive, expensive, and emotionally draining.
Risk factors that cannot be ignored
The shortened qualifying period is only part of the story. Two other changes amplify the risk:
- The tribunal claim window is doubling from three months to six months.
- The compensation cap is being removed, meaning awards could be significantly higher.
Taken together, these critical factors create a ‘new risk’ for small businesses that rely heavily on short‑service dismissals. As such, SMEs must rethink how they recruit, onboard, manage, and, when necessary, dismiss employees.
Inaction is the biggest risk to small businesses
Probation periods have traditionally been a safety net – if someone wasn’t right for the role, SMEs could act quickly and decisively to remove them from the business. But from January 2027, probation periods will need to be managed with far greater care.
By far the biggest risk is inaction. If an employee reaches six months’ service without documented concerns, clear feedback, or evidence of support, dismissing them becomes significantly more complex.
That’s why we and my other HR Dept colleagues are urging SMEs to be far more rigorous in how they manage probation. Business owners need a practical safety buffer, and they need act now by reviewing and rethinking their existing HR processes.
Practical steps SMEs can take to mitigate risk
The good news is that SMEs can protect themselves with straightforward, practical changes. These do not necessarily require a dedicated HR department – just consistency, clarity, and a little forward planning.
Here are the steps I recommend to every small business owner:
- Review duration of probation periods: Rather than having the current 6-month period, consider implementing a 5-month period ensuring that reviews are completed in a timely manner ahead of the 6-month qualifying period.
- Review and update probation procedures: Make sure probation periods include structured check‑ins, documented feedback, and clear expectations. A simple template can make this easy. Also make sure reviews are scheduled in the calendar and take place on time.
- Strengthen recruitment processes: Better hiring reduces the risk of early dismissals. Improved job descriptions and clear person specifications, probing interview questions, and other pre-employment checks completed before employment commences.
- Improve onboarding: A strong start helps identify issues early. Provide clear role expectations, training, and regular touchpoints in the first 12 weeks.
- Document performance concerns from day one: This is essential. Even brief notes from conversations can make a significant difference if a dismissal is challenged.
- Train managers on early‑stage performance management: Many managers avoid difficult conversations. A short training session can give them the confidence to act early and fairly.
- Update employment contracts: Ensure contracts reflect the new legal landscape, including probation terms, notice periods, and review points.
- Seek HR advice early: A quick conversation with an HR professional can prevent costly mistakes. Early advice is always cheaper than defending a tribunal claim.
The hidden risk few people are talking about
There is another aspect to the unfair dismissal changes that is both complicated and carries significant risk to employers, and it centres on fixed term contracts. A fixed term contract is exactly what it says – it is a role that has been created for a defined period of time.
However, it is still categorised as a dismissal and has the potential to be deemed as unfair. To avoid a potential case against them, employers should explicitly state in the contract that the role is for the fixed term only (start and end dates) as well as stipulating why it has been created, (such as maternity cover or a specific project), and why it will end on a specific date with no alternative position envisaged.
A final word to small business owners
January may feel far away, but the employees who will gain protection on January 1 are already in your business today. That means the window for action is already open. You do not need to become an HR expert to protect your business from a potential unfair dismissal claim, but you do need to be aware of what these changes mean.
SMEs are resilient, adaptable, and resourceful and with a few practical adjustments you can protect your business and support your employees so that you can navigate the new legal landscape with confidence. If you’re unsure where to start, reach out.
Michaela Gartside is director of The HR Dept Bracknell, Windsor and Heathrow.
