The Growing Need for Effective People Management in SMEs
Why Getting It Right Has Never Been More Critical
The landscape for small and medium-sized enterprises (SMEs) has never been more challenging when it comes to people management. With employment tribunal claims rising by 23% in the last year alone and sweeping employment law changes on the horizon, SMEs can no longer afford to take a reactive approach to people matters.
The Stark Reality: Rising Tribunal Claims Tell a Story
The Ministry of Justice's latest tribunal statistics covering January to March 2025 paint an increasingly concerning picture for UK businesses. The data reveals a system under severe strain:
- 45,000 open employment tribunal cases at the end of March 2025 – a staggering 32% increase on the same period last year
- Unfair dismissal claims dominate at 22% of the total caseload – a figure set to explode when day-one unfair dismissal rights take effect
- Discrimination claims surged to represent around 30% of total claims – more than a 15% increase on the previous quarter
- Disability discrimination claims jumped 28% in Q1 2025 alone, with 2,231 claims filed
The breakdown of claim types tells a stark story:
- Unfair dismissal: 22% of all claims
- Breach of contract: 14% of all claims
- Disability discrimination: 13% of all claims
But it's the momentum that's most alarming. Redundancy pay claims rose 25% to 484 cases, while working time directive claims increased 25% to 1,232 cases in just one quarter.
These aren't just numbers – they represent real businesses facing significant financial and reputational damage. With the average unfair dismissal award sitting at £13,749 and discrimination awards averaging much higher, even one tribunal claim can be devastating for an SME.
The system is buckling under pressure, with calls mounting for government intervention. While the Chancellor's recent Spending Review included £450 million per year for the court system, it remains unclear how much will reach employment tribunals – leaving businesses facing potentially years-long delays in resolution.
April 2025: The First Wave of Change
While the major Employment Rights Bill reforms won't take effect until 2026, significant changes are already hitting SMEs in 2025:
Immediate Changes (Already in Effect)
- National Insurance increases: Employer contributions rise from 13.8% to 15% on earnings above £5,000 (down from £9,100)
- Statutory rates increase: SSP rises to £118.75 per week, with maternity/paternity pay increasing to £187.18 per week
- Neonatal care leave: New 12-week paid leave entitlement for parents of babies requiring specialist care
- Enhanced protective awards: Fire and rehire failures can now result in 25% compensation uplifts on protective awards (up to 112.5 days' pay)
2026 and Beyond: The Employment Rights Revolution
The Employment Rights Bill represents the "biggest update to workers' rights in a generation." For SMEs, the implications are profound, particularly given the current tribunal crisis.
Consider this: with unfair dismissal already representing 22% of all tribunal claims, the introduction of day-one unfair dismissal rights will likely trigger an avalanche of new cases. Currently, employees need two years' service to claim ordinary unfair dismissal – removing this barrier could dramatically increase the 45,000 open cases already clogging the system.
Other key changes include:
- Guaranteed hours contracts for workers on irregular schedules
- Enhanced flexible working rights from day one
- Stronger protections against dismissal for pregnant women and new mothers
- Day one paternity and parental leave rights
- Mandatory prevention of harassment duties for employers
With discrimination claims already surging (up 15% in Q1 2025 alone) and disability discrimination claims jumping 28% in just one quarter, the enhanced protections will likely fuel further increases in tribunal activity.
What SMEs Can Do Now: Building Resilience
The businesses that will thrive are those taking action today, not waiting until 2026. Here's your roadmap:
1. Audit Your Foundation
- Review all employment contracts for compliance and clarity
- Assess your current policies against upcoming requirements
- Evaluate your record-keeping systems – accurate documentation will be crucial
- Check your payroll systems can handle the increasing complexity
2. Strengthen Your People Practices
- Implement robust recruitment processes that demonstrate fairness and consistency
- Develop clear performance management frameworks to support any future dismissal decisions
- Create comprehensive induction programmes to maximise success during extended probationary periods
- Establish regular communication channels with employees to identify and address issues early
3. Address Difficult People Challenges NOW
With day-one unfair dismissal rights looming in 2026, you have a critical window to resolve existing people issues:
- Review all current probationary periods – make decisive decisions to either confirm or dismiss before April 2026
- Tackle underperformance proactively – begin formal performance management processes immediately for struggling employees
- Address persistent absence patterns – implement formal absence management procedures now, not later
- Deal with conduct issues decisively – don't let behavioural problems fester until day-one rights take effect
- Document everything thoroughly – ensure you have robust evidence trails for any decisions made
This isn't about being harsh – it's about being fair to both your business and good employees. Addressing these issues now, while you still have current legal protections, prevents them from becoming significantly more complex and costly post-2026.
4. Invest in Manager Capability
Many SMEs lack dedicated HR expertise, making manager capability critical:
- Train managers in employment law basics and fair treatment principles
- Develop confidence in difficult conversations and conflict resolution
- Ensure managers understand the business case for good people practices
- Create clear escalation procedures for complex situations
5. Focus on Employee Engagement
With discrimination claims representing 30% of all tribunal cases and rising sharply, prevention is critical:
- Regular employee feedback mechanisms to identify issues before they escalate
- Clear communication about company values and expected behaviours
- Robust anti-discrimination policies and training – particularly around disability discrimination
- Recognition and reward systems that motivate and retain good people
- Flexible working arrangements that meet business and employee needs
Preparing for 2026: Strategic Considerations
Financial Planning
- Budget for increased employment costs and potential tribunal cases from enhanced rights and higher NICs through to dispute management
- Consider the cost of extended probationary periods and potential impact on productivity
- Plan for potential increases in family-related leave uptake
- Factor in the increased difficulty and cost of managing performance issues post-2026
Policy Development
- Prepare to update employment policies ready for 2026 implementation
- Consider how guaranteed hours contracts might affect your business model
- Review your approach to zero-hours contracts and casual workers
- Develop harassment prevention strategies beyond basic compliance
System Improvements
- Upgrade HR information systems to handle increased complexity
- Improve absence tracking and management systems
- Enhance document management for employment-related records
The Business Case: Why This Matters
Effective people management isn't just about compliance – it's about competitive advantage. Research shows that committed employees deliver:
- 21% higher profitability
- 10% increase in customer satisfaction
- 20% increase in sales
Conversely, poor people practices lead to:
- Significant management time lost to tribunal proceedings (average 4.8 weeks per claim)
- Reputational damage
- High turnover costs and reduced productivity
- Potential years-long delays in tribunal resolution due to the current backlog crisis
Making It Manageable
For many SMEs, the challenge isn't knowing what to do – it's having the expertise and time to do it. Consider:
- Engaging specialist HR consultants who understand SME challenges
- Joining employer networks for shared learning and support
- Investing in people management training for key managers
- Regular people health checks to identify and address risks early
The Bottom Line
The employment law landscape is changing rapidly, and the cost of getting it wrong has never been higher. With 45,000 cases already clogging the tribunal system and unfair dismissal claims set to explode once day-one rights take effect, there's a critical window for action.
You have approximately 18 months to clean house. Use this time wisely to address underperformance, resolve conduct issues, and make the difficult decisions while current protections still apply. After April 2026, these conversations become infinitely more complex and costly.
But this isn't just about compliance – it's about building businesses that can attract, retain and motivate great people. The SMEs that will succeed are those that see these changes as an opportunity to professionalise their people practices, create competitive advantage through employee engagement, and build robust foundations for growth.
The question isn't whether you can afford to invest in better people management – it's whether you can afford not to. And the time to act is now, before the law changes make everything significantly more difficult.
If you'd like help and support taking the next steps please get in touch.
