Six months, not two years: the dismissal change small employers should prepare for now

Most small employers manage the first couple of years of an employment relationship informally, and the law has quietly encouraged that. Ordinary unfair dismissal protection currently requires two years' continuous service, so if a hire wasn't working out at month fourteen, the conversation was awkward rather than legally dangerous.

That changes on 1 January 2027. Under the Employment Rights Act 2025, the qualifying period for protection against ordinary unfair dismissal drops from two years to six months, and the cap on the compensatory award a tribunal can make is removed. Fire-and-rehire protections come in at the same time. Dismissals with an effective date of termination before 1 January 2027 keep the two-year rule, so there is a window — and it is now about five months wide.

What is and isn't changing

It is worth being precise, because the headlines have not been. This is not a day-one right. From January 2027 an employee needs six months' service to bring an ordinary unfair dismissal claim, not none.

Separately, day-one protections already exist and are unaffected. Dismissal for a discriminatory reason, for whistleblowing, for asserting a statutory right, or in connection with pregnancy has never required any qualifying service. Employers who believe the first two years are a legal free pass are already wrong about that, and have been for years.

The 2026 changes you may have missed

The qualifying period is the headline, but it arrives on top of a year of quieter changes. From 6 April 2026, statutory sick pay lost both its lower earnings limit and its waiting days, so SSP is payable from the first day of absence and to lower-paid staff who previously fell outside it. Paternity leave and unpaid parental leave became day-one rights, and the maximum protective award for failures in collective redundancy consultation doubled.

Then on 1 October 2026 the time limit for bringing most employment tribunal claims extends from three months to six. That one is the sleeper. It doubles the period in which a departing employee can decide they are aggrieved, and it means the notes you didn't take in September are still relevant the following March.

The change doesn't make it harder to let someone go. It makes it much harder to do it without a reason you wrote down at the time.

Why this lands hardest on small firms

A business with an HR function already runs probation reviews, keeps notes and follows a process, because someone's job is to make that happen. A ten-person business usually doesn't. Performance problems get handled in the van, in the kitchen or in the pub, and the record of the conversation exists only in the owner's memory.

That has been survivable because the exposure was low. From January 2027, a hire who isn't working out at month seven sits inside the protected zone, and the question at tribunal is not whether you were right about their performance. It is whether you had a fair reason and followed a fair procedure — and the evidence for both has to be contemporaneous.

What it could cost — an illustration

Take an employee on £32,000 dismissed at month eight in 2027 with no documented process. The basic award is small because it is service-related. The compensatory award is where the money sits, and it reflects actual financial loss: if they are out of work for four months, that is around £10,700 of gross earnings before pension and benefits.

A tribunal can also increase the award by up to 25% where an employer has unreasonably failed to follow the Acas Code of Practice on disciplinary and grievance procedures — which takes the illustration to roughly £13,400, before your own legal costs and the days spent preparing. None of that is catastrophic to most businesses. All of it is avoidable with paperwork that takes twenty minutes.

On the removal of the compensation cap: for most small employers it changes less than it sounds. The compensatory award is currently capped at the lower of a year's pay or a statutory maximum, and for anyone earning under that maximum the binding limit was already their own salary. The uncapped award matters most for senior, high-earning dismissals. The qualifying period is the change that will actually touch a ten-person firm.

The five things worth doing before January

**Make probation mean something.** Most contracts contain a probation clause that nobody actions. Diary reviews at six, twelve and twenty weeks, hold them, and write down what was said — what probation periods actually protect covers how to use them properly rather than decoratively.

**Issue the written statement of particulars on day one.** It is already a legal requirement from the first day of employment, and it is the first document any tribunal will ask for. If you're hiring for the first time, start here.

**Learn the three-step rhythm.** Concern raised and recorded, support offered with a timescale, outcome reviewed. Two sides of A4 per employee is enough. If it escalates, a written warning done properly is the difference between a defensible dismissal and an expensive one.

**Slow the hiring down.** The cheapest way to avoid a dismissal is not to make the wrong hire — and the real cost of a bad hire was already far higher than most owners calculate before any of this changed.

**Follow the Acas Code even when you think you needn't.** From next January the population of people who can bring a claim roughly triples in the early months of employment, and the uplift for ignoring the Code applies to the whole award.

The honest version

There is a temptation to read a change like this as another reason not to hire, and some owners will. That reaction is understandable and mostly wrong. The businesses that will find January 2027 uncomfortable are the ones that were relying on the qualifying period instead of managing people, and the fix costs a notebook and a diary entry rather than a retainer.

The firms that already write things down will barely notice. The five months between now and then are enough to become one of them.

Common questions

Does this mean employees get day-one unfair dismissal rights?

No. From 1 January 2027 the qualifying period for ordinary unfair dismissal falls from two years to six months, so an employee still needs half a year's continuous service before they can bring that kind of claim. What is often confused with a day-one right already exists and is unchanged: dismissal for a discriminatory reason, for whistleblowing, for asserting a statutory right, or in connection with pregnancy requires no qualifying service at all and never has. So the practical shift for a small employer is that months seven to twenty-four of an employment relationship stop being a low-risk zone and start behaving like any other period.

What happens to someone I dismiss in December 2026?

The old rule applies. Where the effective date of termination falls before 1 January 2027, the two-year qualifying period still governs whether an ordinary unfair dismissal claim can be brought. The effective date of termination is the date employment actually ends, not the date you make the decision or hold the meeting, so notice periods matter to the calculation. A word of caution: using the remaining months as a deadline to clear out staff you have concerns about is both grim and risky, because day-one protections still apply and a rushed dismissal is exactly the kind that produces a discrimination claim instead.

Does removing the compensation cap change much for a small business?

Less than the headline suggests, for most. The compensatory award is currently limited to the lower of a year's gross pay or a statutory maximum, which means that for any employee earning below that maximum the binding constraint was already their own salary rather than the statutory ceiling. Removing the cap matters most where a senior, high-earning employee is dismissed unfairly. For a business whose staff earn typical wages, the change that actually alters your exposure is the shorter qualifying period, because it multiplies the number of people who can bring a claim at all. Budget your attention accordingly.

Do I need to rewrite my employment contracts before January 2027?

Not usually. The qualifying period is set by statute, so it applies regardless of what your contracts say and no clause can contract out of it. What is worth reviewing is whether your contracts contain a probation clause you actually use, whether they reference a disciplinary and grievance procedure that exists in writing, and whether every employee has the written statement of particulars they are already legally entitled to from day one. If you have been issuing contracts inconsistently, fixing that is far more valuable than redrafting the wording. The gap is almost always practice rather than paperwork.