2026 Employment Changes: What SMEs need to fix now

For owner-managed businesses, the Employment Rights Act 2025 represents one of the most significant shifts in employment law in decades.

Awareness isn’t enough anymore. The focus now needs to move to action.

What’s Actually Changing?

From January 2027, the qualifying period for unfair dismissal will reduce from two years to just six months. That is a fundamental shift in early-stage employment risk.

At the same time, changes to sickness absence management expected in April 2026 will require far more structured, consistent and well-documented processes. What was previously handled “sensibly at the time” will increasingly need to stand up to formal scrutiny months, or even years, later.

For many SMEs, this is where risk sits.

The Real Issue for Owner-Managed Businesses

In smaller organisations, people management often evolves organically. Conversations happen informally. Decisions are pragmatic. Policies exist, but aren’t always followed to the letter.

Under the new framework, that gap between what’s written and what happens in practice becomes much more exposed.

Informal management styles, inconsistent policy application, outdated contracts and poorly documented conversations will carry greater risk. Audit trails matter. Records of discussions matter. Evidence matters.

One poor early-stage decision could escalate into a tribunal claim, bringing legal cost, management distraction, reputational risk and a loss of control over the outcome.

What SMEs Should Be Doing Now

Preparing for 2026 isn’t a paperwork exercise. It requires practical changes:

• Reviewing contracts of employment to reflect legislative updates
• Updating handbooks and policies so they align with the new framework
• Structuring early-stage performance and conduct processes properly
• Training managers to make compliant decisions from the outset
• Creating one centrally managed source of truth for people processes 

The businesses that act early will protect themselves from unnecessary exposure later.

2026 Readiness: A Practical Approach

We are supporting SMEs with a 2026 Readiness Review, a focused assessment of where contracts, policies and day-to-day management decisions may be exposed under the new regime.

It’s not theoretical. It’s about identifying practical risk and putting sensible structure in place before the changes bed in.

Staff Central – Your All-in-One HR Hub

Alongside advisory support, we also offer Staff Central, our all-in-one HR app designed to bring policies, processes and people management into one place.

Staff Central helps businesses

• Apply policies consistently
• Maintain clear audit trails for absence and performance management
• Give managers structured guidance
• Create a reliable, centralised record of key people decisions

Because compliance in 2026 will depend as much on process discipline as legal wording.

These reforms are coming. They cannot be managed reactively.

The question for SMEs isn’t whether change is needed, it’s whether you’re choosing to deal with it now, or later under pressure.

If you’d like to discuss a 2026 Readiness Review and understand where your current exposure sits, we’re happy to have an initial conversation. Email: [email protected]