UK employment law 2026
UK Employment Law: A new era of hiring caution for permanent recruitment
As the UK enters 2026, the landscape of employment law is undergoing its most significant transformation in a generation. The Employment Rights Act 2025, intended as a much-needed modernisation of workplace regulations, is arriving at a moment of considerable economic fragility. Combined with slowing hiring and the rapid adoption of artificial intelligence, the result is not greater confidence for employers, but a pervasive sense of caution that is reshaping recruitment strategies across the financial services sector.
The Employment Rights Act 2025: A detailed analysis
From next year, the new Act introduces several critical changes that directly affect the employer-employee relationship from day one.
The end of the qualifying period for sick pay
One of the most immediate changes is the amendment to Statutory Sick Pay (SSP). Under the new rules, SSP will be payable from the first day of an employee's absence, removing the previous waiting period. For financial services firms, which operate on tight schedules and depend on consistent team performance, this change introduces new administrative and financial considerations. The potential for increased short-term absences could impact project timelines and operational continuity, requiring more robust contingency planning and absence management policies.
Extended tribunal time limits and widened harassment duties
The Act doubles the time limit for employees to bring claims to an employment tribunal. This extension gives potential claimants more time to prepare cases, which could lead to a rise in litigation. Simultaneously, the legislation widens employers' duties to prevent harassment, extending liability to include the actions of third parties such as clients, customers, or visiting contractors. For client-facing roles common in banking, asset management, and insurance, this creates a new layer of risk that demands proactive training, clearer codes of conduct, and immediate intervention protocols to protect both staff and the firm.
The outlawing of "Fire and Rehire" practices
The controversial practice of "fire and rehire," where employees are dismissed and then offered re-engagement on less favourable terms, will be largely outlawed. While this change is designed to protect employees, it removes a tool some firms have used to restructure and adapt to market changes. In a volatile economic climate, the inability to flexibly adjust terms and conditions may lead businesses to hesitate before creating permanent roles, especially when future revenue is uncertain.
The broader context: economic and technological headwinds
These legal changes do not exist in a vacuum. They land in a challenging environment marked by economic slowdown and profound technological disruption, creating a perfect storm for hiring managers in London.
Economic fragility and hiring paralysis
Permanent employment is no longer just a commitment of salary; it is now a long-dated legal exposure. The final quarter of 2025 already provided a preview of what’s to come, with a noticeable drop in permanent placements alongside a rise in interim and temporary hires. This is not an ideological resistance to workers’ rights, but a matter of balance sheet realism.
When the cost of getting a hire wrong rises, fewer hiring decisions are made. In an economy with tight margins and uncertain demand, businesses respond rationally by delaying recruitment, narrowing the scope of roles, and avoiding open-ended commitments. This cautious behaviour will disproportionately affect entry-level and junior positions, as firms prioritise experienced hires who represent a lower perceived risk. The pipeline of new talent into the financial services industry may shrink as a result.
The AI revolution and workforce planning
At the same time, the integration of artificial intelligence is fundamentally reshaping how work is performed in finance. From algorithmic trading to AI-driven compliance and data analysis, many traditional roles are being augmented or automated. Employers are in a state of strategic uncertainty, questioning which roles will remain human-led, which will become human-supervised, and which will disappear entirely.
Against this backdrop of technological flux, locking in permanent headcount feels premature and strategically risky. Why commit to a long-term, legally protected role when that function may be obsolete in three to five years? This uncertainty further fuels the preference for more flexible staffing solutions that allow firms to adapt as technology evolves.
The rise of the flexible workforce
The confluence of new legislation, economic pressure, and AI adoption is likely to create a labour market that is more tentative, not more secure. Employers will increasingly favour contract assignments, fixed-term roles, and interim solutions. This shift is not about finding a loophole; it is about building a bridge. Flexible talent allows businesses to test market demand, assess a candidate's capability and cultural fit, and evaluate the long-term need for a role before committing to the significant legal obligations of permanent employment.
For a sector like financial services, which relies on specialist skills for specific projects, the interim model is particularly attractive. It provides access to high-calibre professionals who can deliver immediate value without the long-term risk exposure. This approach enables firms to remain agile, scaling their workforce up or down in response to market conditions and strategic priorities.
The great irony is that legislation designed to enhance worker security may inadvertently encourage employers to offer that security later, not sooner. Rights do not eliminate risk; they redistribute it. In 2026, a substantial portion of that risk now sits squarely with the decision to make a permanent hire.
Navigating the new talent landscape
The challenges ahead are significant, but not insurmountable. Success will require a strategic shift in how financial services firms approach recruitment and workforce management. Proactive planning, a deep understanding of the market, and a willingness to embrace flexible talent solutions will be key. This is not merely about filling vacancies; it is about building a resilient, adaptable workforce that can thrive amidst legal, economic, and technological change.
The employment market is complex, and the stakes have never been higher. If you are reviewing your hiring options or recruitment plans for 2026 and beyond, gaining specialist advice is crucial.
At Marks Sattin, we have 35+ years of experience hiring for the financial services sector. Our expertise can help you understand the nuances of the current market and identify the optimal talent solutions for your business. Get in touch to discuss your specific needs and how we can help you build a successful finance team in this new era.
