2026 could bring a spike in freelance jobs but with greater scrutiny. Inage by Photo by MART PRODUCTION via Pexels
Government’s day-one dismissal pledge falls short as experts predict hiring freeze for new perm hires and surge in contractor demand. However, this trend could be short-lived due to an upcoming work status consultation
The Employment Rights Bill has cleared the House of Lords, but contracting industry leaders are warning the legislation could backfire spectacularly for the self-employed and small businesses alike.
Despite government pledges of “day one” unfair dismissal protection, the bill as passed appears to offer meaningful protection only after six months of employment – a distinction that Dave Chaplin, CEO of contracting authority ContractorCalculator, says is “critical, especially for small businesses.”
SMEs face six-month “cliff edge” on new perm hires
Chaplin argues the six-month threshold creates a dangerous calculation for small and medium-sized enterprises struggling with uncertain revenue streams:
For SMEs looking to grow, a six-month cliff edge dramatically increases the risk of hiring. Revenue fluctuates, pipelines are uncertain, and hiring is often a calculated gamble. If a business has to be confident a role will still be affordable in six months’ time, many simply won’t take that chance. Agencies may see more demand, but I expect permanent hiring to fall.
Contractor model emerges as lower-risk alternative
The likely response from small businesses, according to Chaplin, is to abandon permanent employment altogether in favour of engaging contractors on project-based terms.
“The obvious response is not to hire employees at all,” said Chaplin.
He continued:
Instead,firms will package work into defined projects with clear deliverables and engage contractors directly. For small businesses, there is no IR35 tax risk in doing so – that sits with the contractor – making this a far more flexible and lower-risk model.
He warns the legislation represents a paradox: “While the ERB strengthens protections for people who already have jobs, it raises the hurdles for those trying to get one. This is legislative friction. For small businesses, it’s dreadful. Speculative hires are off the table. We’re not watering business seeds here – we’re drying them out.”
Business groups reach a compromise
The bill only passed after the government convened emergency talks between business organisations and trade unions following successive Lords votes against day-one unfair dismissal rights – a manifesto commitment.
The Recruitment and Employment Confederation, Small Business Britain, and the Federation of Small Businesses were among those consulted, who told the Secretary of State for Business and Trade that the negotiated outcome “represented a significant step forward which will have a positive impact on growth and opportunities.”
Employment status consultation delayed until 2025
Meanwhile, the long-awaited consultation on reforming the employment status framework has been delayed until the new year due to parliamentary “ping-pong” over the bill.
UK employment status expert Rebecca Seeley Harris warns that the consultation, as currently drafted, “still leaves workers exposed to bogus self-employment,” although she notes it is unlikely to address tax issues.
The consultation is expected to focus on the concept of “dependent contractor” rather than introducing Single Worker Status and will examine issues including sham substitution.
Warning of ‘escape routes’ for employers
Lord Hendy, an employment lawyer, raised concerns in June about potential loopholes in the bill’s provisions on guaranteed-hours contracts.
He predicted “a deluge of short-term contracts introduced to evade guaranteed-hours contracts for zero-hours workers,” and warned employers might re-categorise employees as self-employed to avoid obligations.
“The industrial reality is that it would be very difficult for the zero-hours employee to resist re-categorisation as a self-employed worker,” Lord Hendy said.
He also highlighted at the time that the 12-week reference period means “more than a million workers will never at any point reach that reference period and so be entitled to the benefit of a guaranteed-hours contract.”
Ed-Op: Is there a happy medium for worker status?
The argument is clear: if the government wants to boost the economy and support scale-ups, it must also support the diverse workforce these companies need to grow. That means highly skilled freelancers who provide specialist expertise on demand, alongside flexible workers who can cover shifts for deliveries, inventory management, customer service and more.
Some workers want predictable income and employee benefits, pension contributions, paid holidays and the proverbial free coffee. Others need autonomy and are willing to accept the risks that come with self-employment. Then there are those in the middle: self-employed or agency workers who haven’t chosen this status, but find themselves there through redundancy or the nature of gig economy work. They occupy a grey zone and are often vulnerable to exploitation.
Every employer, regardless of size, must ask itself: are we better served by having permanent or part-time salaried employees in certain roles and departments, whilst engaging freelancers in others?
If businesses need both types of workers – and most do – they must leave no ambiguity about employment status. Contracts, statements of work and engagement letters must clearly outline the inherent pros and cons of each arrangement.
Yet there’s something troubling about how risk-averse recruitment has become. The Employment Rights Bill may strengthen protections for those already in work, but it risks creating barriers for those trying to enter the workforce – and that benefits no one.
For the freelancers who, after a challenging 2025, might view 2026 with cautious optimism following Mr Chaplin’s prediction that contractors could become the hires of choice, there’s a caveat: expect greater scrutiny.
Rebecca Seeley Harris anticipates the worker status consultation will focus on the concept of “dependent contractor” rather than introducing Single Worker Status, and will put a spotlight on sham substitution. For contractors, this means the increased demand predicted by Chaplin may come with tighter regulation and closer examination of working arrangements.
Whether this scrutiny prolongs the big British hiring freeze or not, if there is a freelancer hiring boom, enjoy it, folks, while it lasts.
