The regulatory landscape for UK small businesses is about to undergo one of its most significant shifts in a generation.
For dismissals taking effect on or after 1 January 2027, the qualifying period for unfair dismissal claims will plummet from two years to just six months. Crucially, the statutory cap on compensation awards is also being removed.
For small businesses - such as those around retail - these changes dramatically increase the risk of facing more tribunal claims and potentially higher compensation payouts, one legal firm has warned.
Getting ready for the changes means proactively reviewing recruitment, induction and performance monitoring processes now - according to legal firm Citation.
Gill McAteer, director of employment law at the firm, said: “There’s no ‘one size fits all’ approach to probation. The starting point must always be practical - how long does it actually take to assess whether someone can do the role successfully? A probation period that is too short to accurately judge performance, conduct and cultural fit offers little benefit.
“However, employers must think strategically about the new six-month threshold. If an employee’s probationary period is extended beyond six months and they’re subsequently dismissed, they will hit the threshold to bring an unfair dismissal claim.
“This risk doesn’t just apply where probation is extended because of ongoing performance concerns, but to any situation where the six-month threshold is reached, such as being unable to hold a review meeting due to an employee’s sickness absence.”
For many businesses, a four-month probationary period may become the sensible default. This provides a buffer, giving employers the vital flexibility to extend probation if concerns are identified and further monitoring is needed, all while remaining within the safe six-month window.
A common misconception is that employers can safely dismiss an underperforming team member on the final day before the six-month deadline, but his is a dangerous assumption. Where an employee is dismissed and paid in lieu of notice, their length of service is calculated by adding the statutory notice period of one week.
If you do choose to extend an employee’s probation, it must always be confirmed in writing. The letter should clearly set out the reasons for the extension, the specific improvements required, and the exact duration of the extension period.
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