The two-year qualifying period ends on 1 January 2027, and it applies to people already on your payroll. The countdown didn't start in Westminster. It started in your onboarding inbox.
Most business owners I talk to have filed the unfair dismissal changes under "January problem". Have a look after the Christmas rush. Get the handbook reviewed in the new year.
I'd file it differently.
The new starter who joined you this week will have full unfair dismissal protection by the first week of January. Not because of anything you signed. Because the Employment Rights Act 2025 counts their service from the day they walked through the door, and six months from now the law changes underneath them.
Here's what's actually happening, why the timing is sneakier than the headlines suggest, and what a sensible small business does about it in July rather than December.
What changes on 1 January 2027
Two things land together, and each makes the other more expensive.
The qualifying period drops from two years to six months. For dismissals from 1 January 2027, an employee needs six months' service to claim ordinary unfair dismissal, not two years. That's the government's revised implementation timetable, published in February, and nothing since has suggested it's moving.
The compensation cap disappears. The compensatory award for unfair dismissal is currently capped at the lower of 52 weeks' gross pay or £123,543. The April 2026 uprating was the last one there will ever be. For dismissals from 1 January 2027, the cap is abolished and awards reflect actual financial loss.
It's worth remembering how we got here, because it explains the shape of the final rules. The original plan was day-one unfair dismissal rights, softened by a new "statutory probationary period" with a lighter-touch dismissal process inside it. The House of Lords pushed back hard, the government blinked, and the Bill that passed on 16 December 2025 swapped all of that for something simpler and blunter: six months' service, then full protection. No special probation regime. No lighter-touch process. Your contractual probation period still exists, but it's a management tool now, not a legal shield.
The bit that keeps getting missed: it applies to your existing staff
This is the line that should be in every summary and mostly isn't.
The six-month rule doesn't only apply to people hired after 1 January 2027. It applies based on service at the date of dismissal. Anyone with at least six months' service on 1 January 2027 has unfair dismissal protection from that date.
Do the maths on your own team:
| When they started | When they get protection |
|---|---|
| Before January 2025 | They already have it (two years' service before the change) |
| January 2025 to end of June 2026 | 1 January 2027. All of them. Same day. |
| July 2026 | January 2027, six months after their start date |
| October 2026 | April 2027 |
| Any later hire | Six months after day one |
That middle row is the one to sit with. If you've grown at all since the start of 2025, a decent chunk of your workforce flips from "no ordinary unfair dismissal rights" to "fully protected" overnight on New Year's Day. And every person you hire between now and December arrives with a six-month fuse already lit.
Six months is shorter than you think
I've run businesses with more than a hundred people on the payroll, so I can tell you what most probation reviews actually look like: a calendar reminder snoozed twice, then a corridor conversation and a tick in a box. Under a two-year qualifying period, that sloppiness was survivable. You had another eighteen months to notice a problem and deal with it properly.
That slack is gone. Play the new timeline forward. The three-month probation review drifts to month four because everyone's busy. Concerns get raised verbally around month five. By the time anyone writes anything down, the employee has full protection and your paper trail is a shrug.
If you're thinking "how bad can it really be, the average unfair dismissal award is about £14,000", that's a fair challenge. Most dismissals never become claims, tribunals still expect people to mitigate their losses, and compensation is based on what someone actually lost. But averages aren't what change behaviour. Tails are. With the cap gone, a claim from a well-paid employee is suddenly worth pursuing, claimant firms will take more cases on no-win-no-fee terms, and settlement conversations lose their anchor. Add the separate October 2026 change extending tribunal time limits from three months to six for most claims, and the window in which a bad dismissal can come back to bite you doubles as well.
The cost of a badly documented dismissal is rising on three axes at once: who can claim, how much they can claim, and how long they've got to do it.
What this doesn't change
Some honesty, because scare pieces annoy me. Three things stay exactly as they are.
Day-one rights already exist. Dismissals connected to discrimination, whistleblowing, health and safety concerns, pregnancy, or asserting a statutory right have never needed any qualifying service. A four-month dismissal has never been paperwork-free, and if your process only felt safe because the two-year rule was quietly catching your mistakes, it was never really safe.
The basic award stays capped and formulaic. It's the compensatory award, the actual-loss element, that becomes uncapped.
And fair dismissals remain fair. Nothing in the Act stops you dismissing someone who isn't performing. It asks you to show a fair reason and a fair process. Which, if we're honest, was always the deal.
What to do in July, not December
Five jobs. None of them needs a lawyer on retainer.
1. Make probation reviews real events. Fixed milestones, written outcomes, and a final decision point comfortably before month six. If the review is a formality, you don't have a probation process. You have a probation ornament.
2. Train managers to write things down at the time. Dates, specifics, what was said, what was agreed. Tribunal outcomes turn on contemporaneous notes, not memory. This is the cheapest risk control available to you.
3. Deal with drift now. If someone hired in early 2025 isn't right and the conversation keeps getting postponed, run a fair process this summer rather than letting 1 January make the decision more expensive. To be clear, that means addressing it properly, with the same care you'd apply after the change. Not rushing people out of the door.
4. Check your contracts and offer letters. Probation length, review points, notice during probation, the right to extend. Six months is now the outer wall, and your contractual machinery needs to work inside it.
5. Align the handbook. Your disciplinary and capability procedures need to be something a line manager can genuinely follow inside a six-month window. A policy nobody can operate at that pace isn't a policy. It's a liability with a table of contents.
Quick answers
Does the six-month qualifying period apply to existing employees?
Yes. It applies based on service at the date of dismissal, so anyone with six months' service on 1 January 2027 is protected from that date, whenever they were hired.
Can I still dismiss someone with less than six months' service?
Yes, and ordinary unfair dismissal won't apply. But day-one protections such as discrimination, whistleblowing and health and safety apply from the first day, and from October 2026 claimants have six months rather than three to bring most tribunal claims.
Is the compensation cap definitely being removed?
Yes. For dismissals from 1 January 2027 the compensatory award is uncapped. The increase to £123,543 in April 2026 was the final uprating. Awards still reflect actual loss, and claimants still have a duty to mitigate.
What happened to the statutory probation period?
Dropped before the Bill became law, along with day-one rights. There is no lighter-touch statutory process. Contractual probation periods remain useful, but as a management framework, not a legal defence.
When do I actually need to act?
Before your current new starters reach six months' service. For anyone hired this month, that's January. The review framework they'll be judged under needs to exist now, not be retrofitted in December.
The gap between "we've got a probation policy somewhere" and "our managers run a documented process" is exactly where January's risk lives. Bounda keeps your handbook, policies and review framework in step with what the law actually says — legal change alerts flag which sections each new provision touches, and the free compliance check shows where you stand today.
