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 SMEs, this double-whammy dramatically increases the risk of facing more tribunal claims and potentially higher compensation payouts.
With the margin for error shrinking, businesses can no longer afford to view probationary periods as a “set-and-forget” exercise. Getting ready means proactively reviewing recruitment, induction, and performance monitoring processes now.
Is the six-month probation period dead?
There is 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 perform in 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 are 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.
The New Best Practice: 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. However, this should only be used for roles where it is possible to assess suitability within that period.
What about last-minute dismissals?
A common misconception is that employers can safely dismiss an underperforming team member on the final day before the six-month deadline.
This is a dangerous assumption. Where an employee is dismissed and paid in lieu of notice (PILON), their length of service is calculated by adding the statutory notice period of one week.
For example, John has a six-month probation and starts on 7 July 2026, meaning he reaches six months’ service on 6 January 2027. If he is dismissed and paid PILON on 2 January 2027, his statutory one-week notice is added to his service, pushing him past the six-month threshold and giving him the right to claim unfair dismissal.
What do line managers need to be aware of to avoid unfair dismissal claims?
Too often, managers place all the focus on a single, formal review at the very end of a probation period, leaving the employee with zero time to address concerns.
Probation needs to be treated as a structured assessment period. It is an opportunity to set expectations early, address concerns, ensure the employee has the tools to succeed, and, crucially, create an audit trail. Regular check-ins iron out issues early and provide transparent feedback on what is going well and what needs improvement. Line managers must be trained in these processes to ensure they are consistently followed.
Even if a decision is made well within the six-month window, a documented process is still essential. Day-one rights already exist for claims requiring no minimum service, including:
- Discrimination
- Whistleblowing
- Raising Health & Safety concerns
- Asserting certain statutory rights
- Other automatically unfair reasons for dismissal
Without clear evidence explaining the performance, attendance, or conduct reasons behind a dismissal, an employee may argue that the real reason was discriminatory or automatically unfair. A robust, documented process brings transparency and helps mitigate these legal risks.
What can employers do to prepare for this change?
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.
Ultimately, surviving the 2027 legislative shift requires looking at the bigger picture. Tightening up recruitment and induction processes ensures you find the right talent and set them up to hit the ground running. Ask yourself:
- Do your selection processes accurately assess suitability?
- How could your onboarding and training be improved?
- Do new starters have a support network, such as a colleague mentor?
Supported employees who understand what is expected of them are far more likely to succeed. By taking proactive steps today, your business will reduce risk, improve retention, and stand on much stronger ground tomorrow.
Gillian McAteer Photo: Handout