A Watershed Moment for HR Leaders: What the Employment Rights Act 2025 Means for Your Hiring Strategy Right Now

A letter from us to you in partnership with the REC

Dear HR Leader,

I am writing to you as an HR leader responsible for workforce planning and employment compliance, because the legislative landscape governing how you hire, manage, and retain employees is changing more significantly than at any point since the Recruitment Agencies Act 1973. The changes I outline below are not theoretical; several are already in force, and others carry deadlines that, once passed, will reshape your exposure to legal risk materially and permanently.

At Touchscreen Talent, we specialise in placing Technology, AI, and Digital Transformation talent. Our clients rely on us not only to find the right people, but to understand the environment in which those people are hired. This letter reflects both roles.

The Unfair Dismissal Changes: Why July 2026 Is the Critical Hiring Date

The most urgent issue for your immediate attention concerns unfair dismissal. From 1st January 2027, under the Employment Rights Act 2025, the qualifying period for an employee to bring an unfair dismissal claim will be reduced from two years to six months. Simultaneously, the cap on compensatory awards, currently the lower of £123,543 or 52 weeks’ gross pay, will be removed entirely.

The practical implication is straightforward and demands action now. Any employee you take on before 1st July 2026 will have accrued the six-month qualifying period by 1st January 2027 and will therefore have full statutory protection from that date. Anyone hired from July onwards will cross the six-month threshold during the course of 2027. There is no grace period and no transition arrangement.

This is not a future problem. For HR teams managing permanent headcount decisions in H2 2026, every new hire made from this point onwards enters your organisation under a materially different risk profile than hires made prior to this year. The removal of the compensation cap is particularly significant for senior Technology and Digital Transformation appointments, where salaries and therefore potential award values are high.

The practical steps recommended ahead of January 2027 include a thorough review of your disciplinary and grievance procedures, ensuring they are documented and communicated to employees; a structured approach to probationary periods that includes regular feedback and recorded performance conversations; and an audit of any informal management practices that have not previously been tested against a six-month qualifying threshold.

There is also a commercial dimension worth considering. Some organisations, cautious about direct hiring in this environment, may look more favourably at interim and contract arrangements, or at temp-to-perm models that allow performance to be assessed before permanent employment is confirmed. For those hiring Tech and Digital talent, where skills are highly specialised and the cost of a poor hire is significant, this approach has genuine merit.

Guaranteed Hours: A Consultation That Demands Your Input

The Employment Rights Act 2025 also introduces a framework of guaranteed hours rights for workers on zero-hours and low-hours contracts. The Government is currently consulting on the detail of the provisions, with the consultation closing on 25th August 2026. The implementation date for guaranteed hours rights is expected to fall in 2027, though no specific date has been confirmed.

Under the proposals, employers will be required to offer workers guaranteed hours reflecting the hours they have regularly worked over a defined reference period. The Government’s preferred reference period is 12 weeks, though options of 26 and 52 weeks are also under consultation. Employers will also be required to provide reasonable notice of shifts and cancellations, with a statutory presumption of between one and four weeks’ notice, and to make payments where shifts are cancelled, moved, or curtailed at short notice, at rates ranging from 10% to 80% of lost earnings depending on timing and severity.

For organisations using flexible or contingent labour, including contract Technology and Digital resources, it is important to understand that the Act creates a separate but similar regime for agency workers. Under this regime, the obligation to provide guaranteed hours sits with the hirer, while both the agency and the hirer share responsibility for reasonable notice. The consultation also includes a proposal to exempt agency workers from guaranteed hours rights where their agency contract already guarantees them hours above a specified threshold, though the level of that threshold remains under discussion.

The REC has argued strongly for a full exemption for genuinely temporary workers, as is the case in the Irish system, and has further argued that if agencies are included, the reference period should be 52 weeks rather than 12, to distinguish stable patterns from seasonal variation. These are the positions being put to Government. Whether or not they are adopted, the compliance and contractual obligations flowing from this legislation will require careful planning by HR functions that engage flexible workforces.

Right to Work: Changes Taking Effect from October 2026

From October 2026, the legislation governing Right to Work checks will change substantially. The Home Office is amending the Immigration, Asylum and Nationality Act 2006 to extend the illegal working regime beyond direct employees to a much wider category of working arrangements. This will include individuals engaged under a worker’s contract (limb (b) workers), individual subcontractors in supply chains, and online matching platforms that introduce service providers to clients.

Crucially, responsibility for Right to Work checks will no longer rest solely with the direct employer. Clients who engage recruitment agencies for temporary supply work may still be treated as responsible for those workers and can be found liable if the workers do not have the right to work in the UK. A code of practice and employer guidance is being developed by the Home Office, but the new obligations will be in force from October regardless.

The REC’s position, in its response to the consultation, is that checks must not be unnecessarily burdensome, particularly for smaller businesses; that existing regulatory frameworks such as the Conduct Regulations already provide a foundation; and that additional identity checks must not disproportionately affect UK nationals. The REC is also pressing the Home Office directly on this point and engaging with the Home Secretary.

For HR leaders and procurement teams, the practical implication is that your existing supplier agreements with staffing agencies should be reviewed to understand where Right to Work liability sits, and your internal processes for onboarding contingent workers may need to be revisited before October. The Government has also stated an ambition to move Right to Work checks entirely to digital by the end of this Parliament, which, when delivered, should reduce the administrative burden considerably.

The Wider Picture: A Labour Market Under Pressure

These legislative changes are landing in a labour market that is already under strain. The most recent KPMG and REC Report on Jobs, published in June 2026, reported the quickest fall in permanent placements for ten months in May, driven by heightened uncertainty linked to global pressures and domestic employment law changes. Employers are increasingly leaning on temporary and contract staffing to maintain flexibility, with temporary billings rising at their fastest rate in over three years.

This is particularly relevant for Technology, AI, and Digital Transformation hiring. Permanent placement volumes in technical disciplines are falling at pace. The pool of available candidates is larger than it has been for some time, owing to redundancies and reduced demand. Yet the risk profile attached to permanent hiring has increased, as the unfair dismissal changes take effect. The combination of greater candidate availability, sharper legislative risk, and continued demand for specialist skills creates an environment in which getting hiring decisions right, and getting them right quickly, matters more than it has for years.

Looking Ahead

The Employment Rights Act 2025 is the most significant reshaping of UK employment law in over half a century. It affects not only how you hire but how you manage, what you owe to flexible workers, how you conduct Right to Work checks, and how much financial exposure you carry when employment relationships end badly.

As you consider your workforce plans for the remainder of 2026 and into 2027, I would invite you to reflect on a number of questions.

Have you reviewed your probationary processes and management documentation in light of the January 2027 unfair dismissal changes, and do you have confidence that they would withstand tribunal scrutiny at the six-month mark rather than the two-year mark? Have you assessed your exposure to guaranteed hours obligations across your contingent workforce, and do you understand how your staffing agency relationships will need to evolve once those provisions come into force? Are your Right to Work processes and supplier contracts ready for the October 2026 changes, and do you know where liability will sit if a check is not completed correctly? And given that permanent hiring in Technology and Digital disciplines is slowing whilst candidate availability increases, are you taking advantage of the current market conditions to secure the talent your organisation needs for the next phase of its transformation?

If any of these questions would benefit from a conversation, I would be glad to help. Touchscreen Talent works exclusively in Technology, AI, and Digital Transformation, and we combine deep market knowledge with an understanding of the legal environment in which our clients operate.

You can find out more about us at www.touchscreentalent.co.uk.

Yours sincerely,

Simon