Small businesses in the UK are being warned of a "real compliance burden" ahead of a change to employment law due to take effect on 1 January 2027. The Employment Rights Act will reduce the qualifying period for employees to claim ordinary unfair dismissal from two years to just six months, giving employers far less time to assess whether a new hire is suitable before they gain significant additional rights.

While the change has been welcomed as strengthening protections for workers, business groups warn it will make it harder for small firms to manage staff and will force owners to make decisions about permanency much sooner. The concern comes as small businesses are already under strain from wider policies introduced under Chancellor Rachel Reeves, with unemployment currently standing at 4.9 per cent, prompting experts to worry that the added compliance pressure could further squeeze struggling firms.