Tech hiring holds up, but employment law is about to change the math

Employers in information and communication are among the most confident about growing headcount. The Chartered Institute of Personnel and Development (CIPD) puts the sector’s net employment balance – the share of employers expecting staff levels to rise minus those expecting a fall over the next three months – at +23 in its Labour Market Outlook for winter 2025/26, published on 16 February. Across all employers the figure is +7.

A day later, the Office for National Statistics (ONS) showed a cooler picture across the wider market. Vacancies were estimated at 726,000 in November 2025 to January 2026, down 73,000 (9.2%) on a year earlier, and the biggest falls were at the smallest firms.

The question for people leaders at small and mid-sized tech companies is whether that relative confidence survives 2026, the year the Employment Rights Act 2025 starts to bite. The CIPD’s own survey suggests a sizeable minority of employers are already planning around it.

What the data shows

The CIPD survey, run by YouGov among 2,082 senior HR professionals and decision-makers between 18 December 2025 and 17 January 2026, describes a labor market that is hard for jobseekers and easier for employers. James Cockett, senior labour market economist at the CIPD, writes in the report’s foreword: “There has been little movement around employer hiring intentions, which remains at an unparalleled low, outside of the pandemic.”

Some 60% of employers plan to recruit in the next three months, down from 67% a year earlier. Size matters: 31% of large private sector organizations expect staff levels to rise, against 23% of private sector SMEs. Only 14% of SMEs expect a fall, however, leaving most smaller employers planning to hold headcount or still unsure.

The ONS data points the same way. Vacancies fell over the year in every business size band, and the largest drops were at businesses with one to nine employees and 10 to 49 employees, down 18,000 each. The unemployment rate was estimated at 5.2% in October to December 2025, up on the quarter and on a year earlier. Annual growth in regular pay in Great Britain was 4.2%, but 3.4% in the private sector.

Pay expectations have settled too. The CIPD’s median expected basic pay award is 3% for the seventh consecutive quarter, and the share of employers planning rises of 5% or more has fallen from 31% to 18% in a year.

Recruitment pressure has eased more broadly. The CIPD reports that hard-to-fill vacancies have fallen alongside overall vacancy levels. Among information and communication employers, just under half (46%) anticipate problems filling vacancies in the next six months, while 50% expect none.

Where the new employment law lands

The more important finding for 2026 is how employers say they will respond to the act. Three-quarters (74%) expect it to raise their employment costs, and 37% plan to hire fewer permanent staff because of at least one of its main reforms.

Two measures stand out. The day-one right to statutory sick pay takes effect on 6 April 2026. The unfair dismissal qualifying period falls from two years to six months on 1 January 2027, but the CIPD points out it will apply to anyone hired on or after 1 July 2026. Each of those two changes is cited by 24% of employers as a reason to hire fewer permanent staff.

That matters most for smaller firms without a dedicated HR team. The CIPD is blunt about the risk: “Many small firm owner-managers will be oblivious of this very significant and pending change to the law.” Its report says SMEs will need advice and support on both dismissal rules and absence management.

The survey also points to a shift in how work is contracted. The CIPD argues that the act’s reforms are likely to reduce employers’ willingness to hire permanent staff, leading to a possible rise in temporary employment, and it quotes the Department for Business and Trade’s own economic assessment, which flagged the same risk if policy is not well targeted.

The case against overreacting

The same data cuts the other way. Between 54% and 58% of employers say each individual measure will not affect their permanent recruitment, and around a fifth do not yet know. Intentions are not decisions, and a survey taken over the turn of the year captures uncertainty as much as plans.

The government also expects benefits the survey cannot test. According to the CIPD’s summary of the Department for Business and Trade’s economic analysis, the government assesses that giving trade unions greater freedom to organize, represent and negotiate could reduce workplace conflict. Employers are skeptical: 55% expect at least one of the main reforms to increase conflict, while about 4% expect the union measures to reduce it. The CIPD itself says that a very large majority of employers do not recognize trade unions, particularly among the UK’s 1.4 million micro and small employers, which it says makes it difficult to see union recognition reducing conflict in any material way.

Nor is the cost picture all about the act. Asked which cost had the biggest financial impact in 2025, the largest group of employers (26%) named the rise in employer National Insurance contributions, ahead of salary increases (11%).

What people leaders should do now

For a 40-person software company, the practical deadline is 1 July 2026, not 2027. Anyone hired from that date will be able to claim unfair dismissal once they reach six months’ service on or after 1 January 2027.

That makes the first six months of employment the period that counts. Contractual probation periods, structured reviews at three and five months and line-manager training on documenting performance concerns all need to be in place before the summer hiring round. Sick-pay budgets and absence policies need updating before 6 April.

The temptation will be to swap permanent hires for contractors. For tech employers that may be a false economy: the sector is among those where far more employers expect to add staff than cut, while across the market hard-to-fill vacancies have fallen and pay expectations have settled. The firms that tighten onboarding now, rather than freezing permanent hiring, are likely to be the ones that pick up the talent others pass over.