Day-one unfair dismissal rights officially disappear

Following pressures from businesses and the ongoing deadlock with the House of Lords, the Government has officially ended its plan to give workers protection against unfair dismissal from day one of employment.

Currently, an employee must have been in employment for 2 years before they are eligible to bring an ordinary unfair dismissal claim. As part of the Government’s proposed employment law changes, it was proposed that this would be removed altogether. This will not now happen. Instead, the Government has agreed to retain a new qualifying period of 6 months. This change will not happen immediately, though: instead, we anticipate this coming into force in 2027.

This shorter qualifying period will mean that employers may need to tighten their probation and disciplinary procedures and ensure that issues are dealt with early. This new threshold also effectively renders any probation periods above 6 months effectively useless and policies will need to be updated to reflect this.

Changes to the compensation cap?

The Department of Business and Trade have also confirmed that “the compensation cap will be lifted” for unfair dismissal claims. What this means in effect, however, we still do not know.

Currently, there are two caps on any successful unfair dismissal claim, being the lower of:

• A year’s salary; or
• £118,223.

It could therefore be that one or both of these caps will be removed, possibly allowing potential compensation to be completely unrestricted by statutory limits. Further to indications from the Chief Executive of the Recruitment and Employment Confederation, we believe that it’s the 52-week limit that will be removed, whilst the £118,223 cap will remain in place (with the possibility of this upper limit being further increased later down the line). However, this will not be confirmed until the amended legislation is released.

Either way, it’s clear that these changes could significantly increase exposure to employers in future claims.

We anticipate that these changes to unfair dismissal rights will come into force in 2027.

The 2026 Budget

On 26 November 2025, the Government released this year’s budget. Here’s how it will affect you in the years ahead.

1. Increased national minimum and national wages

From 1 April 2026, the UK Government have confirmed that there are new statutory minimum pay rates following recommendations from the Low Pay Commission.

• The National Living wage (which applies to those aged 21 and over): from £12.21 to £12.71 per hour
• 18-20 year olds: from £10.00 to £10.85 per hour
• 16-17 year olds & apprentices: from £7.55 to £8.00 per hour

Businesses should make sure to review their payroll and ensure compliance by April 2026 to avoid any employment tribunal claims or HMRC investigations (which could come with hefty fines).

2. Changes to salary sacrifice

The Treasury have announced a new cap on the amount that employees can sacrifice from their salary before being subject to tax.

From April 2029, only the first £2,000 per year of salary-sacrificed pension contributions will remain NI-exempt.

Any contributions above this will attract both employee NI (8% or 2%) and employer NI (15%).

Whilst this hasn’t yet come into force, you should begin reviewing your pension schemes and providers as soon as possible and bear this in mind for any new starters.

If you have any questions, we’re here to help, get in touch with Simon Shepherd.