As Unfair Dismissal Rules Tighten, 7 in 10 SMEs Plan to Act Sooner on Dismissal Decisions, IRIS Research Finds
- 71% of SME employers plan to bring forward dismissal decisions amid concerns over increased exposure to claims under new unfair dismissal rules, a new study from IRIS Software Group says.
- With claims becoming possible after six months – and the compensation cap set to be removed entirely – employers face rising exposure, with cases already costing £22,200 on average.
London, UK, 1 April, 2026: UK SMEs are preparing to bring forward dismissal decisions when new hires don’t work out, as changes to unfair dismissal rules increase businesses potential exposure to claims and financial risk, new research from IRIS Software Group reveals.
The study of 500 SME HR leaders* found that 71% are likely to make dismissal decisions before six months where concerns arise – effectively shortening the window in which new employees are given a chance to succeed. The findings raise an important question for employers: rather than accelerating dismissal decisions, is the greater opportunity in getting the first six months right from the start?
Under the Employment Rights Act 2025, from 1st January 2027, the qualifying period for ordinary unfair dismissal claims will drop from two years to six months. At the same time, the compensation cap will be removed entirely, increasing the potential financial exposure for employers**.
Importantly, some dismissal-related claims – including discrimination and whistleblowing – already have no qualifying period and no compensation cap, meaning employees can bring claims from day one of employment.
A common practice, now under scrutiny
Early-stage dismissals are already a reality for many SMEs. On average, HR leaders said they had dismissed two employees between six and 24 months’ service over the past three years.
The most common reasons cited were performance or capability concerns (50%), followed by misconduct (43%), attendance or sickness-related issues (33%), failure to meet targets (31%), and breakdowns in working relationships (17%).
A separate IRIS poll of 500 SME employees* found that nearly one in five (19%) had been dismissed or made redundant between six months and two years into a role. Of those, 73% felt the decision was unfair or unjustified – yet only 20% went on to raise a claim, with 17% saying they were unable to because they had not yet reached two years’ service.
Risk is rising – and employees are ready to act
Of the employees polled by IRIS, 63% said they were more likely to challenge a dismissal under the new six-month rules – pointing to a potential rise in claims as access to rights increases.
IRIS’ poll uncovered significant existing financial exposure. Two in five (42%) SMEs said they had defended an unfair dismissal claim in the past three years, at an average cost of £22,200 across settlements, compensation, legal fees and time lost. Nearly a quarter (23%) said cases had cost between £25,000 and £49,999, with 8% facing costs of up to £99,999.
Stephanie Coward, Managing Director, HCM at IRIS Software Group, said: “What’s striking is that many of these situations already exist – employees feeling decisions are unfair, but not having the ability to challenge them.
“These changes don’t necessarily create new risk, but they do make existing issues far more visible and actionable for employees. The first six months of employment have never mattered more — not just in terms of risk, and as an opportunity to get the employment relationship right from the start.”
Reshaping employer behaviour
While the reforms are designed to improve fairness, they are also reshaping employer behaviour. Nearly half (47%) of HR leaders said the changes would improve fairness but increase business risk, while 30% believed they would improve fairness without major disruption.
Over half (51%) of HR leaders said the changes would make employers more risk-averse in hiring – with many planning to act earlier where concerns arise and introduce more rigorous screening of candidates. Three quarters (76%) said they would become more cautious about candidates with limited references or patchy employment histories, and the same proportion plan to introduce more thorough candidate screening processes.
At the same time, employers are looking to strengthen how probation is managed. More than a third (36%) said the changes would drive improvements in management standards, with a clear focus on better documentation, earlier performance checkpoints and more structured processes within the first six months.
When documenting probation performance and dismissal decisions, 38% of SMEs still rely on email trails, 32% on paper files and 29% on spreadsheets — rather than dedicated HR software. A third (34%) of SMEs said they are planning to invest in dedicated performance management tools such as HR software as a result, with a further 39% already having systems in place or planning investment regardless.
Stephanie Coward added: “There’s a clear tension in the data. Employers recognise the intent behind these changes – to improve fairness – but many plan to respond by accelerating firing decisions and becoming more cautious in who they hire.
“The risk is that probation becomes more about early risk management. The organisations that come out ahead on this will be those treating the first six months as a structured, evidence-led programme, not an afterthought.
“That’s where having the right systems in place becomes critical. It’s no longer enough to rely on informal conversations or fragmented records – employers need a clear, consistent view of performance, decisions and supporting evidence from day one.
“The organisations that get this right won’t just be managing risk, they’ll be treating the first six months as a genuine opportunity to set people up to succeed. That means being intentional from day one: clear expectations, structured check-ins, and the right systems to give managers the support and evidence they need to make good decisions.”
For more information visit: https://www.iris.co.uk/hr/
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* The research was conducted by Censuswide, on behalf of IRIS Software Group, among a sample of:
- 500 HR leaders at SMEs. The data was collected between 13.03.2026-19.03.2026.
- 500 employees at SME’s. The data was collected between 13.03.2026 – 17.03.2026.
SME is defined as under 250 employees. Censuswide is a member of the Market Research Society (MRS) and the British Polling Council (BPC), and a signatory of the Global Data Quality Pledge. It adheres to the MRS Code of Conduct and ESOMAR principles
** Gov.uk – Factsheet: Unfair Dismissal https://assets.publishing.service.gov.uk/media/6970a03df88ad0be09b9ef07/unfair-dismissal-factsheet.pdf?utm_source=chatgpt.com
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About IRIS Software Group
IRIS Software Group is a global provider of mission critical software and one of the UK’s largest privately held software companies. IRIS provides software solutions and services for finance, HR and payroll teams, educational organisations, and accountancy firms that takes the pain out of processes and lets professionals focus on the work they love. Through simplifying, automating and providing insights on everyday mission critical tasks for organisations of all shapes and sizes, IRIS ensures customers can look forward with certainty and confidence.
IRIS is the largest third-party online filer with the UK Government. Ninety-three of the top 100 UK accountancy firms use IRIS software. One in six of the UK’s workforce is paid by IRIS payroll offerings, and globally, six million employees receive their payslip via IRIS software every month. More than 850,000 UK employees are managed by IRIS HR solutions. Over 12,000 UK schools and academies use IRIS, with four million parents and guardians using IRIS apps to connect with their children’s school; 300 million messages are delivered between schools and parents each year, and over £15 million transactional payments are processed every month. IRIS is certified as a Great Place to Work® and recognised as one of The Times Top 50 Employers for Gender Equality in 2023. IRIS is also recognised as one of the Best Workplaces for Wellbeing, one of the Best Workplaces in Tech and one of the Best Workplaces for Women.
To see how IRIS helps organisations get things right first time, every time, visit www.iris.co.uk or follow IRIS Software Group on LinkedIn, Twitter and Instagram.
Media contact:
Jennifer Peters | News@irisglobal.com