On this page · 12 sections
- What changes on 1 January 2027, and who it already covers
- What a UK developer costs before any dismissal risk
- How the risk changes between month 6 and month 24
- Probation design under a six-month qualifying period
- In-house, contractor or offshore team: how the comparison changes
- The 2027 catch: swapping staff for contractors
- How US companies should read this
- Decision table: choose the model that fits the work
- Worked example: a 40-person London SaaS company adding four developers
- Implementation checklist
- How eCorpIT can help
- References
Summary. From 1 January 2027 an employee in England, Wales or Scotland can claim ordinary unfair dismissal after six months' continuous employment instead of two years, and the cap on the compensatory award goes. The change is section 25 of the Employment Rights Act 2025, switched on by SI 2026/559 for every termination whose effective date falls on or after 1 January 2027. Anyone who started on or before 1 July 2026 will already have six months' service on that day, and since 1 October 2026 claims can be brought within six months rather than three. The salary base does not move: ONS puts the provisional April 2026 median for full-time programmers and software development professionals at £59,863. Add employer National Insurance at 15% above £5,000 and the 3% pension minimum, and the statutory cost is about £69,413 a year. What changes is the risk between months 6 and 24, so probation needs a documented decision around week 20. Contractors and offshore teams sit outside unfair dismissal law, but a new section 104K will make it automatically unfair to dismiss an employee to replace them with a non-employee; DBT expects the related fire and rehire rules in March 2027. This is not legal advice.
About this article. For founders, engineering leads and HR teams hiring software developers in Great Britain, and for US firms with UK staff. We checked the statute and commencement regulations on legislation.gov.uk, the Department for Business and Trade (DBT) timeline, Acas guidance, ONS earnings data and HMRC and HM Treasury rates on 12 November 2026. This is general information, not legal or tax advice, and planned dates can move. Researched with AI assistance and reviewed by our editorial team.
What changes on 1 January 2027, and who it already covers
Section 25 of the Employment Rights Act 2025 makes two edits to the Employment Rights Act 1996. In section 108 the qualifying period for ordinary unfair dismissal becomes six months instead of two years, and section 124, which capped the compensatory award, is repealed. The commencement regulations (SI 2026/559, made 26 May 2026) apply both changes wherever the effective date of termination (EDT) falls on or after 1 January 2027, even if the dismissal happened earlier, and not where the EDT falls before that date.
Three details matter for hiring managers:
- It reaches people you already employ. The test is length of service at the EDT, not the hire date. Someone who joined on 1 July 2026 has six months' service by 1 January 2027.
- Notice moves the date. Under section 97(2) of the 1996 Act, if an employer ends employment without the statutory minimum notice, the EDT for the qualifying period moves to when that notice would have expired. Section 86 sets that minimum at one week for anyone with one month to two years' service.
- Ministers lose the power to change the period by secondary legislation. Section 25(4) removes section 108(1) from the amending power in section 209(5), so a further change would need new primary legislation.
The rules sit in the 1996 Act, which applies to England, Wales and Scotland; Northern Ireland has its own employment law and is not covered. Some protections never had a qualifying period and still do not: discrimination claims, whistleblowing, and automatically unfair reasons such as pregnancy or trade union membership.
| Item | Terminations effective before 1 Jan 2027 | Terminations effective from 1 Jan 2027 |
|---|---|---|
| Qualifying period for ordinary unfair dismissal | 2 years | 6 months |
| Compensatory award | Capped under section 124 | No cap |
| Time limit to claim | 6 months since 1 Oct 2026 (3 months before) | 6 months |
| Ministerial power to change the period by secondary legislation | Yes | Removed |
| Dismissing an employee to replace them with a non-employee | Ordinary rules | Automatically unfair once section 104K is commenced |
The legal status differs by row. The first four rest on section 25 and SI 2026/559 and on the tribunal time limit change that took effect on 1 October 2026. The last row is section 104K, inserted by section 28 of the Act. DBT lists fire and rehire protections, also in section 28, for March 2027, and Acas says no exact date has been given. The latest commencement regulations we could read, SI 2026/1065 made on 1 October 2026, bring section 28 into force only for regulation-making purposes.
What a UK developer costs before any dismissal risk
The ONS Annual Survey of Hours and Earnings for April 2026, released on 22 October 2026, gives median annual gross pay for full-time employees who have been in the job for at least a year. We add the two statutory employer costs that apply to every hire: employer National Insurance at 15% above the £5,000 Secondary Threshold, and the 3% auto-enrolment minimum on qualifying earnings between £6,240 and £50,270.
| ONS occupation (SOC 2020) | Median full-time annual pay, April 2026 | Employer NIC (15% above £5,000) | Employer pension minimum | Statutory annual cost |
|---|---|---|---|---|
| 2133 IT business analysts, architects and systems designers | £64,326 | £8,899 | £1,321 | £74,546 |
| 2134 Programmers and software development professionals | £59,863 | £8,229 | £1,321 | £69,413 |
| 2139 IT professionals n.e.c. | £59,048 | £8,107 | £1,321 | £68,476 |
| 2135 Cyber security professionals | £55,373 | £7,556 | £1,321 | £64,250 |
| 2141 Web design professionals | £50,963 | £6,894 | £1,321 | £59,178 |
| 2136 IT quality and testing professionals | £45,165 | £6,025 | £1,168 | £52,358 |
Pay figures come from the ONS Figure 5 dataset; National Insurance and pension columns are our arithmetic, for example (£59,863 minus £5,000) × 15% = £8,229 and (£50,270 minus £6,240) × 3% = £1,321.
For context, the ONS median for all full-time employees is £40,911, so a median developer earns nearly half as much again. Read the table with four caveats. The 2026 figures are provisional and will be revised in October 2027. They are UK medians, and ONS reports the fastest growth in weekly full-time earnings in London, at 8.2%, partly because of a shift towards professional jobs, so London offers usually sit above them. The statutory column excludes benefits, equipment, recruiter fees and any pension above the legal minimum, and the pension band is the current one, which the government reviews each year. And employers with a pay bill above £3 million also pay the 0.5% Apprenticeship Levy, after a £15,000 allowance.
Budget 2026, published on 28 October 2026, keeps the 15% rate, the £96 weekly Secondary Threshold and the £10,500 Employment Allowance unchanged for 2027/28. Since April 2025 the allowance is no longer limited to employers with smaller National Insurance bills, though only one company in a connected group can claim it.
How the risk changes between month 6 and month 24
A developer dismissed at month 10 in 2027 can bring an ordinary unfair dismissal claim. The cost of a successful claim is mostly the compensatory award, which a tribunal sets at what is just and equitable given the employee's loss. The basic award counts complete years of service, so for someone with less than a year it is usually nil.
An illustration, not a prediction: if a tribunal found a dismissal unfair and the developer took three months to find a similar job, three months of gross pay at the ONS median is £59,863 divided by 4, about £14,966. Tribunals assess net loss and can reduce awards, so treat that as an order of magnitude. Removing the cap matters most for senior people and long periods out of work, where the old limit used to bind.
Defending a claim costs management time and legal fees whatever the outcome, and negotiated exits get more expensive: HMRC charges employer Class 1A National Insurance at 15% on the part of a termination award above £30,000. Our guide to the 2027 HR and payroll system dates covers how payroll should code those settlements.
Probation design under a six-month qualifying period
A contractual probation period does not change the statutory clock. Extending probation to nine months does not extend the six-month qualifying period, so the design has to work back from the statute.
- Write role-specific criteria into the offer pack. For developers that might be code review quality, independent delivery of a scoped feature, on-call readiness or a system design review. Vague fit criteria are hard to defend and can mask discrimination.
- Hold structured check-ins at roughly weeks 4, 10 and 16, each with written feedback and a stated chance to improve.
- Make the decision around week 20 to 22. That leaves room for one week's statutory notice, an appeal meeting, holiday and the section 97(2) extension before six months.
- Run the same fair process you would use after six months. Tribunals look at reason and procedure, and a documented probation process is also your evidence on any day-one claim.
- Watch day-one risks. Discrimination, whistleblowing, pregnancy and union-related dismissals carry no qualifying period. Check that performance measures do not indirectly disadvantage protected groups, for example by penalising part-time or flexible patterns.
- Let the HRMS do the counting. A computed qualifying date with alerts at weeks 16 and 20 removes the most common failure, a manager noticing the deadline at week 25. If your system cannot do this, our HRMS and HR tech services page explains how we build it.
A six-month process also forces clearer expectations at offer stage, which is where many failed engineering hires go wrong.
In-house, contractor or offshore team: how the comparison changes
The six-month rule does not touch genuine contractors or vendor staff, but those models carry their own rules. Medium and large private-sector clients, and all public-sector clients, must decide a contractor's tax status and issue a Status Determination Statement; small private clients leave that to the contractor's company; and a client receiving genuinely contracted-out services leaves it to the supplier, though HMRC warns against relabelled contracts. Where the rules apply, the deemed employer pays employer National Insurance.
| Factor | In-house UK employee | UK contractor through own company | Offshore team employed by a vendor |
|---|---|---|---|
| Unfair dismissal exposure | After 6 months, uncapped compensatory award | None if truly self-employed; risk if they are in reality an employee | None between you and vendor staff; exit governed by the contract |
| Tax-status work | PAYE | Medium, large and public clients issue a Status Determination Statement | Supplier's responsibility for contracted-out services |
| Employer National Insurance | 15% above £5,000 | Only if deemed employed under the off-payroll rules | None in the UK |
| Cost basis | Salary plus on-costs | Day rate | Monthly team or rate card, usually quote-based |
| Replacing existing staff with this model | Not applicable | Automatically unfair once section 104K applies, unless reduced need or the financial-difficulty defence applies | Same restriction |
| IP and knowledge | Stays with you | Assign by contract | Assign by contract; check source code and IP clauses |
We do not quote market day rates or offshore rate cards; no official source publishes them. Use the statutory cost of an employee as your floor when you compare quotes, and see our offshore, nearshore and onshore developer cost comparison for how to build that comparison. For contractor engagements, our piece on staff augmentation and the 45-day status rule covers the deadline for answering a contractor's status challenge.
The 2027 catch: swapping staff for contractors
Section 28 of the Act inserts a new section 104K into the 1996 Act. It makes a dismissal automatically unfair where the main reason is to replace the employee with an individual who is not an employee, carrying out the same or substantially the same activities under a contract other than an employment contract to which the employer is a party. The individual need not be a party to that contract, and the replacement can be the dismissed person taken back as a contractor. On our reading that covers contractors, agency workers and outsourcing or offshore service contracts. No qualifying period applies, because section 28 also adds 104K to the list of exceptions in section 108(3).
There are two exits. The rule does not apply where the dismissal is wholly or mainly because the business needs less of that work, which is ordinary redundancy. And an employer that is not a local authority can show the replacement was needed to eliminate, prevent, significantly reduce or mitigate financial difficulties affecting its ability to carry on as a going concern, and could not reasonably be avoided.
Timing is the open point. DBT's timeline puts fire and rehire protections, which sit in the same section 28, in March 2027, without naming 104K or a day. Plan on 104K arriving with them and re-check when the commencement regulations appear.
The practical effect: decide the delivery model when you create the scope. An offshore team that builds a new module alongside your UK engineers is a different proposition from one that takes over their jobs later, so record why each workstream sits where it does.
How US companies should read this
At-will employment is the default in every US state except Montana, so the UK was already more protective; the change shortens the runway before ordinary unfair dismissal rights start from two years to six months. Three practical points for US firms:
- Employer of Record. An EOR becomes the legal employer in the UK, so the worker's rights, including unfair dismissal after six months, run against the EOR. Your service agreement decides who bears termination costs. EOR fees are quote-based.
- Contractors. HMRC says that if your organisation is based wholly overseas, with no UK residence or permanent establishment, the off-payroll rules for clients do not apply and the contractor's own company decides status. A UK subsidiary or branch gives you a UK connection and brings the client rules back in.
- Moving work offshore. Section 104K applies to the UK employer of the dismissed employee. A US parent planning to move UK roles to a lower-cost location should plan around it with UK counsel.
For the other US and UK dates landing in 2027, see our US and UK compliance calendar for software teams.
Decision table: choose the model that fits the work
| Choose | If |
|---|---|
| In-house UK hire | The work is core, long-lived and needs deep product context, and you can run a structured six-month probation |
| UK contractor | The work is bounded and specialist with clear deliverables, and you have made and recorded the status determination |
| Offshore dedicated team | You can specify new scope, plan time-zone overlap, and want capacity without UK employment exposure |
| Employer of Record | You are a non-UK company that needs a specific UK-based person before setting up an entity |
| Mixed model | A UK core team owns architecture and product; new modules or maintenance streams go to an external team from day one |
Worked example: a 40-person London SaaS company adding four developers
Assume a London software company with 40 staff, a UK pay bill below £3 million and an unused Employment Allowance, hiring four developers in January 2027 at the ONS median for SOC 2134.
- Statutory cost. 4 × £69,413 = £277,652 a year. Employer National Insurance on the four is 4 × £8,229 = £32,916; if the company is eligible for the £10,500 Employment Allowance and has not used it, the net bill falls to £22,416. No Apprenticeship Levy applies below a £3 million pay bill. London offers will likely sit above the national median.
- Break-even per working day. £69,413 divided by an assumed 220 working days is about £316 a day, before recruiter fees, equipment and benefits. That is arithmetic, not a market rate; use it as the floor when comparing quotes.
- Probation timeline. Developer A starts on Monday 4 January 2027 and reaches six months' service on 3 July 2027. A week-20 decision on Monday 24 May with one week's notice ends employment on 31 May, before the qualifying point. If the decision slips to Friday 2 July with pay in lieu of notice, section 97(2) adds a week, the EDT for this purpose becomes 9 July, and Developer A can claim.
- Exposure if it goes wrong. Three months of lost gross pay is about £14,966, before the tribunal's assessment of net loss and any reductions.
- Where the offshore team fits. The company wants a separate integrations module built in 2027. Giving that new scope to an offshore team alongside the four hires avoids the section 104K problem. Planning to replace two of the four with that team in 2028 does not.
Implementation checklist
- List everyone who will pass six months' service between now and June 2027, and review any open performance concerns with HR now.
- Rewrite offer packs with role-specific probation criteria and a week-20 decision point.
- Add a computed qualifying date and alerts to your HRMS, using continuous service and the section 97(2) notice rule.
- Train engineering managers on fair process for capability concerns, including written feedback and improvement periods.
- Record the delivery model (in-house, contractor, offshore) and the reason for it for each workstream before March 2027.
- For contractors, confirm your client size, issue Status Determination Statements where required and answer any disagreement within 45 days.
- Re-check the dates when commencement regulations for section 28 and the other 2027 measures are published.
How eCorpIT can help
eCorpIT is a Gurugram-based technology organisation, founded in 2021, assessed at CMMI Level 5 and MSME certified, with senior-led engineering teams working across AWS, Microsoft and Google platforms. If you are deciding which workstreams to keep in-house after 1 January 2027, our application development services team can take on new modules, integrations or maintenance streams alongside your UK core team. Talk to us at /contact-us/.
Last updated: 12 November 2026.
