Employment Law Changes 2026–27: What Small Businesses Need to Do Now

UK employment law is going through one of its most significant periods of change in years.

For small businesses, that can feel daunting.

Most SME owners don't have an HR department monitoring legislation every day. They are running the business, managing customers, dealing with suppliers and leading their teams.

But several employment law changes taking effect during 2026 and 2027 will directly affect how smaller employers manage sickness absence, probation, performance, dismissal, harassment and flexible workers.

The good news is that businesses don't need to become employment law experts.

They do, however, need to make sure that their everyday people-management practices keep pace with the changes.

Here are some of the most important areas small employers should be thinking about now.

1. Unfair dismissal protection is changing significantly

One of the biggest changes arrives from 1 January 2027.

The qualifying period for ordinary unfair dismissal is reducing from two years to six months for dismissals from that date.

At the same time, the cap on compensatory awards for unfair dismissal is being removed.

For small businesses, this significantly increases the importance of managing the first few months of employment properly.

Historically, some employers have treated employees with less than two years' service as relatively low risk when employment isn't working out.

That approach needs to change.

Employees can already bring certain claims regardless of length of service, including discrimination and some automatically unfair dismissal claims. From January 2027, ordinary unfair dismissal protection will also arrive much earlier.

What should small employers do?

Start treating probation as an active management process rather than simply a date in the diary.

That means:

• setting clear expectations when somebody joins

• giving regular feedback

• addressing concerns when they arise

• providing appropriate support or training

• documenting important conversations

• holding a proper probation review before the end date

• making timely decisions where employment isn't working out

Extending someone's contractual probation period will not prevent them acquiring statutory unfair dismissal protection once they reach the relevant qualifying service.

The first six months of employment therefore become increasingly important.

2. Good probation management matters more than ever

Probation should answer a straightforward question:

Is this person meeting the reasonable expectations of the role?

Too often, problems aren't addressed until the end of probation.

A manager may have concerns after the first month but wait until month six before having a meaningful conversation.

That creates unnecessary risk.

A better approach is to have structured check-ins during probation — for example after one, three and five months — with clear records of performance, conduct, attendance and any support provided.

If something isn't right, say so early and specifically.

Employees need a reasonable opportunity to understand what is expected and improve.

This isn't about creating bureaucracy. It is about avoiding surprises.

3. Employment Tribunal time limits have increased

From 1 October 2026, the time limit for bringing most Employment Tribunal claims increased from three months to six months.

That means employment decisions may be challenged considerably longer after the event.

For employers, good record keeping becomes even more important.

A manager may remember exactly why a decision was made today.

Six months later, memories may be very different.

Small businesses should therefore review how they record:

• probation reviews

• performance discussions

• disciplinary matters

• grievances

• sickness absence

• flexible working requests

• important management decisions

• reasons for dismissal

You don't need pages of meeting notes for every conversation.

You do need enough information to demonstrate what happened, what information was considered and why a decision was reached.

A useful rule is:

If you make an important employment decision, make sure you could explain it clearly several months later.

4. Employers need to take stronger steps to prevent harassment

From 30 October 2026, employers face strengthened obligations around preventing harassment at work.

This includes taking all reasonable steps to prevent sexual harassment and new liability relating to harassment of employees by third parties such as customers, clients, contractors and suppliers.

This is particularly important for businesses where employees regularly interact with members of the public.

A policy alone is unlikely to be enough.

Employers should consider the actual risks their employees face and the practical controls they can put in place.

That could include:

• completing a harassment risk assessment

• reviewing and communicating policies

• providing practical manager training

• ensuring employees know how to report concerns

• keeping appropriate records

• establishing how managers should respond to inappropriate customer behaviour

• reviewing risks periodically

Consider a restaurant employee dealing with inappropriate comments from a customer, a retail worker being subjected to discriminatory abuse, or an employee experiencing repeated inappropriate behaviour from a contractor.

Managers need to know what they are authorised to do.

Can they challenge the behaviour?

Can they refuse service?

Can they remove a customer?

Who should they report the incident to?

What happens next?

The important shift is from simply responding to complaints towards thinking about prevention.

5. Statutory Sick Pay has already changed

Some changes are not waiting until 2027.

Statutory Sick Pay is now payable from the first day of sickness absence, and the previous lower earnings threshold has been removed.

For small employers, that has both financial and management implications.

Businesses should ensure that payroll arrangements are correct and that sickness absence policies reflect the current position.

It is also worth reviewing the basics of absence management.

Do managers consistently record sickness absence?

Are return-to-work conversations taking place?

Are repeated short-term absences being identified?

Do managers know when additional support or medical advice may be appropriate?

Good absence management shouldn't simply focus on reducing absence. It should help businesses identify patterns, support employees appropriately and deal fairly with genuine attendance concerns.

6. Family leave rights have also changed

Paternity leave and unpaid parental leave have become day-one employment rights.

That means eligibility wording in older policies and employee documentation may now be out of date.

Small businesses should check that their family leave policies reflect the current rules and ensure managers understand the changes.

This is a good example of why employment documentation shouldn't simply be written once and forgotten.

Employment law changes.

Your policies need to change with it.

7. Zero-hours and low-hours working are changing

Further reforms expected during 2027 include new rights affecting zero-hours and low-hours workers, including guaranteed hours, reasonable notice of shifts and payments relating to cancelled or reduced shifts.

Some of the detail remains dependent on further regulations and implementation arrangements.

But businesses that rely heavily on flexible labour shouldn't wait until the final implementation date before thinking about the potential impact.

This is particularly relevant to sectors such as:

• hospitality

• retail

• leisure

• care

• events

• seasonal businesses

Employers should start understanding how many people regularly work significantly different hours from their contractual arrangements.

If your business relies heavily on zero-hours or casual working, this is an area to watch closely during 2027.

8. Flexible working is likely to require greater scrutiny

Further reforms are also expected around flexible working, including a tougher reasonableness test when employers refuse requests.

For small businesses, flexible working can sometimes be more operationally difficult than it is for larger organisations.

A team of five simply has fewer options than a team of 500.

That doesn't automatically mean a request has to be accepted.

It does mean employers should be able to demonstrate that requests have been properly considered and that decisions are based on genuine business circumstances rather than assumptions.

Again, the quality of the management process matters.

What does all this mean for a small business?

The biggest lesson from these employment law changes isn't that SMEs suddenly need enormous HR departments or complicated procedures.

It's that informal people management carries more risk when it isn't supported by clear processes and good records.

Many small businesses have grown successfully through trust, conversation and common sense.

Those things remain valuable.

But as employment protections change, businesses increasingly need some structure around them.

The priority should be getting the fundamentals right.

Seven things small employers should do now

For a small business, the challenge isn't necessarily knowing that employment law is changing. It's finding the time and expertise to work out what needs changing in your business and then putting it into practice.

That is where having practical HR support can make a significant difference.

Here are seven areas we believe SMEs should prioritise.

1. Review and update your HR policies

Changes to sickness absence, family leave, harassment and other employment rights mean that policies written even relatively recently may now be out of date.

Melford People Partners can review your existing HR policies, identify gaps and provide updated, practical documentation that reflects both current employment law and how your business actually operates.

The aim isn't to create a huge employee handbook nobody reads. It's to give you clear policies that managers and employees can genuinely use.

2. Strengthen your probation process

With ordinary unfair dismissal protection reducing to six months' service from January 2027, effective probation management becomes much more important.

We can help businesses put a structured probation process in place, with clear objectives, review points, manager guidance and documentation.

That helps managers identify problems earlier, provide appropriate support and make better-informed decisions before issues are allowed to drift.

3. Give your managers the confidence to manage

Policies alone don't manage people. Managers do.

Many employment problems escalate because managers are unsure what they can say, what they should record or when they need to act.

MPP can provide practical manager training and support covering areas such as probation, performance, absence, conduct, difficult conversations, flexible working and harassment.

The objective is simple: give managers the confidence to deal with people issues early, fairly and consistently.

4. Improve your HR records and processes

With most Employment Tribunal claim time limits increasing to six months, businesses may need to explain employment decisions long after they were originally made.

We can help review how your business records probation, performance, absence, grievances, disciplinary matters and other important employment decisions.

This doesn't mean creating unnecessary paperwork.

It means having straightforward processes and templates that create an appropriate record when it matters.

5. Assess and manage harassment risks

The strengthened harassment duties require employers to think proactively about the risks their employees face, including interactions with customers, clients, contractors and other third parties.

Simply adding another paragraph to a policy is unlikely to be enough.

MPP can support businesses with harassment risk assessments, policy reviews, reporting processes, manager guidance and practical training.

For customer-facing businesses in sectors such as hospitality, retail and leisure, we can also help identify the situations where employees may be particularly exposed and establish clear guidance about how managers should respond.

6. Review how you use flexible, casual and zero-hours workers

Further changes expected during 2027 could have a significant impact on businesses that rely on flexible staffing arrangements.

Rather than waiting until the legislation takes effect, businesses can start understanding their exposure now.

MPP can help review your current workforce arrangements, contracts and working patterns and identify where future changes may have the greatest operational or financial impact.

This can be particularly valuable for seasonal and hospitality businesses where flexible labour is an important part of the operating model.

7. Build an HR plan rather than reacting to each new change

Employment law reform isn't happening on a single date. Changes are being introduced in stages, with further regulations and implementation details still to come.

Trying to respond to every announcement individually can quickly become overwhelming.

A better approach is to understand where your business stands today, identify the biggest risks and gaps, and create a manageable HR action plan.

That might mean updating a few key policies, improving probation, training managers or putting more consistent processes in place.

It doesn't necessarily mean changing everything.

You don't need an HR department to be prepared

For many small businesses, employing a full-time HR professional simply isn't necessary.

But that doesn't mean the owner or senior manager needs to navigate every employment law change alone.

Melford People Partners provides flexible HR support for small and growing businesses — from individual HR projects and policy reviews through to retained HR support and fractional HR leadership.

Our approach is built around four practical areas:

PROTECT — Reduce risk through compliant policies, contracts and people practices.

BUILD — Put the right HR foundations and processes in place.

DEVELOP — Build confident, capable managers who can manage people effectively.

GROW — Make sure your people strategy develops alongside your business.

How prepared is your business?

A good starting point isn't buying a package of policies or completely redesigning your HR processes.

It's understanding what you already have, what is working and where the gaps are.

Our free HR Health Check assesses your business across Protect, Build, Develop and Grow and gives you a practical picture of your current HR foundations.

You'll receive an assessment of the areas where you're performing well and where you may need to take action.

From there, you can decide what you can manage internally and where some additional HR support could help.

Take the free Melford People Partners HR Health Check and find out how prepared your business is for the employment law changes ahead.

This article provides general information and should not be treated as legal advice. Employment law and implementation dates can change, and businesses should take advice on their specific circumstances.