The Employment Rights Act Countdown: What 1 January 2027 Means for Your Practice

General information for practice owners, current at the time of writing (August 2026). Dates and figures are those published by the government and its advisers as at 10 August 2026. The implementation timetable has already moved once — most recently in the roadmap update of 16 July 2026 — and can move again. This is not legal advice; take your own on your firm's facts.

Most practice owners have read something about the Employment Rights Act 2025 in the context of advising clients. Fewer have sat down and worked out what it does to their own firm, which is odd, because an accountancy practice is an employer with a payroll, a partnership culture, a Christmas party and a handful of performance problems it has been quietly tolerating for two years.

The Act is not arriving as one event. It is arriving in instalments, and the instalment that matters most to a fifteen-person practice is the one on 1 January 2027. Here is the whole picture, what actually bites, and what to do with the time left.

What already changed in April — and what firms missed

Three changes took effect on 6 April 2026 and are already live in your payroll, whether or not anyone told you.

Statutory sick pay was rebuilt. The three waiting days are gone, so SSP is payable from the first full day of sickness. The lower earnings limit is gone, so employees who previously earned too little to qualify now do. And the rate became 80% of average weekly earnings or the flat weekly rate of £123.25, whichever is lower. For a practice with part-time bookkeepers and admin staff, that last change quietly brought a group of people into the scheme who were never in it before.

Paternity and parental leave became day-one rights. The old service qualification has gone. A new joiner in week two now has the same entitlement as a ten-year veteran.

Annual leave records became a statutory duty. Employers must keep and retain records of holiday taken. If your firm still runs leave on a shared spreadsheet that gets overwritten each January, that is now a compliance gap rather than an administrative quirk — and it is exactly the sort of thing a buyer's diligence questionnaire asks for.

The three dates before Christmas

The 1 October change is easy to underrate. Doubling the window in which a claim can be brought does not sound dramatic, but it means a disgruntled leaver can appear six months after they walked out, by which point the manager who handled it has often left too, and the contemporaneous notes either exist or they do not. It converts good record-keeping from a nicety into the thing that decides the case.

The 30 October harassment duty is the one that catches partnerships. Moving from “reasonable steps” to “all reasonable steps” sets a standard you discharge with documents, not with culture. A firm where everyone genuinely behaves well but nothing is written down is in a worse legal position than a firm with a dated risk assessment, a signed-for policy and a recorded training session.

1 January 2027: the change that actually matters

From that date, the qualifying period for ordinary unfair dismissal falls from two years to six months. The trigger is the date of dismissal, not the date of hire — and that distinction is where owners get caught out.

Do the arithmetic. If someone needs six months' service, and the rule applies to dismissals from 1 January 2027, then anyone employed on or before roughly 1 July 2026 already clears the bar on day one of the new regime. Not in six months' time. On 1 January. There is no run-in and no grandfathering for people you hired under the old two-year rule.

The same date removes the cap on the compensatory award and restricts “fire and rehire” — imposing changes to pay, pensions, hours, shifts or holiday by dismissing and re-engaging on new terms.

Putting real numbers on it

The headlines have concentrated on the uncapped award. For a typical practice, that is the less important half of the change. Here is why.

Now run the other calculation, the one that does move.

Why this lands harder on a small firm than a large one

A 200-partner firm has an HR director, a template library and an employment solicitor on retainer. A twelve-person practice has an owner who does the appraisals in February if there is time.

That asymmetry is the whole problem. The substantive law is not especially onerous — a fair reason, a fair process, documented. What is onerous is doing it consistently in a firm where the managing partner is also the tax manager, the complaints route, the appraiser and, in a bad month, the person being complained about. Firms in that position have historically relied on the two-year qualifying period as an informal safety net for hiring mistakes: if a new senior did not work out at month eighteen, the conversation was awkward but the legal exposure was small.

That safety net closes on 1 January 2027. Recruitment decisions get more expensive to reverse, which means probation periods and the first six months have to do real work rather than pass by default. It is also one more demand on owner time in a year that already has plenty — see our take on the 2026 capacity crunch.

What it does to the value of your firm

We buy practices directly, so this is the part we see from the other side of the table. Nobody discounts a firm for having employees. What buyers price is uncertainty, and employment records are one of the cheapest places to remove it.

A live or threatened tribunal claim rarely reduces the headline number. It funds a retention, an indemnity or a specific warranty, and it slows completion — which in a deal with any momentum is its own cost. The more common and more damaging pattern is quieter: staff without signed contracts, no written policies, no leave records, three people whose job titles have changed without any paperwork, and a performance issue that everyone knows about and nobody has documented. None of that is fatal. All of it widens the diligence exercise, lengthens the timetable and hands a buyer material to negotiate with.

The remedy is unglamorous and cheap relative to the price of a practice: a complete, dated employment file for every member of staff. That is worth doing whether you sell in two years or twenty, and it is covered in more detail in our guides on due diligence when selling your practice and what reduces the value of your practice.

What to do in the next ninety days

1. List everyone with under two years' service and note their start dates. Anyone at or before about 1 July 2026 is protected from 1 January 2027. This takes twenty minutes and tells you the size of the change for your firm.
2. Deal with the performance problem you have been tolerating. If there is someone in that group where the honest answer is “it isn't working”, the fair-process work needs to start now, properly documented, not in December.
3. Fix probation so it means something. A defined review at month three and month five, written up, with a real decision at the end rather than silent confirmation.
4. Do the harassment risk assessment before 30 October. Date it. Cover client sites and social events. Record who was trained and when. Give people a reporting route that does not run solely through the senior partner.
5. Check your leave records are retained, not overwritten. This has been a statutory duty since April.
6. Confirm payroll is applying the new SSP rules — day one, no lower earnings limit, 80% of average weekly earnings or £123.25 a week, whichever is lower.
7. Get contracts and policies to a single current version. One template, issued to everyone, signed for and filed.

None of this is heroic. It is the same discipline that makes a firm easier to run, easier to hand over and easier to sell — the sort of thing our KPI guide pushes owners towards for the same underlying reason.

Frequently asked questions

When exactly does the unfair dismissal qualifying period change?

The qualifying period for ordinary unfair dismissal falls from two years to six months for dismissals taking effect on or after 1 January 2027. The trigger is the date of dismissal, not the date of hire, so it captures people already on your payroll rather than only new joiners. The arithmetic that catches owners out is simple: anyone employed on or before roughly 1 July 2026 will already have six months' service by 1 January 2027, and so is protected from the first day the new rule applies. There is no run-in period for existing staff and no grandfathering of people hired under the old two-year rule.

Does removing the compensation cap mean unlimited claims against my firm?

In theory yes, in practice rarely. The compensatory award is currently capped at the lower of £123,543 or 52 weeks' gross pay for dismissals on or after 6 April 2026, and that cap is due to be abolished on 1 January 2027. For most practice staff the binding cap was never the money figure but the 52-weeks'-pay limit, and awards are based on actual proven loss, which is usually a few months of earnings. Removal of the cap matters most for well-paid senior people. The far bigger change for a typical firm is how many employees can bring a claim at all.

What do I actually have to do about the 30 October 2026 harassment duty?

The duty moves from taking reasonable steps to taking all reasonable steps to prevent sexual harassment, and third-party harassment liability is extended. The practical test is documentary: a dated risk assessment covering your real exposures, a policy people have actually seen, recorded training with attendance, a reporting route that does not run only through the person most likely to be complained about, and evidence you acted on what you found. Client sites, Christmas parties and social events are the exposures most often missed in a practice. Undocumented good intentions will not discharge the duty.

Does any of this affect what my accountancy practice is worth?

Indirectly, yes. Buyers do not discount a firm for employing people, but they do price uncertainty. A live or threatened tribunal claim usually funds a retention or an indemnity rather than reducing the headline number. Missing contracts, no written policies, no leave records and an informal approach to performance management all widen the diligence exercise, slow completion and give a buyer material to negotiate with. The fix is cheap relative to the price of a practice: a complete, dated employment file for every member of staff removes an entire category of questions before anyone asks them.

Do the April 2026 sick pay changes cost a small practice much?

The cost is modest but it is real and it is administrative as much as financial. Since 6 April 2026 statutory sick pay is payable from the first day of absence rather than the fourth, the lower earnings limit has gone, and the rate is 80% of average weekly earnings or £123.25 a week, whichever is lower. For a firm of twenty people the extra cash cost is typically a few hundred pounds a year. The bigger effect is on payroll processing and on part-time staff who previously fell outside the scheme entirely and now qualify.